EMERALD OIL & GAS NL

ACN 009 795 046

TARGET’S STATEMENT

IN RELATION TO THE PROPORTIONAL TAKEOVER OFFER BY CONFEDERATE

CAPITAL PTY LTD FOR 30% OF THE SHARES IN EMERALD OIL AND GAS NL FOR

1.4 CENTS PER EMERALD SHARE

YOUR INDEPENDENT DIRECTORS’ RECOMMEND THAT YOU DO NOT ACCEPT

THE OFFER AND THEIR REASONS FOR THIS RECOMMENDATION ARE SET OUT

IN SECTION 1.2 OF THIS TARGET’S STATEMENT

THE INDEPENDENT EXPERT ENGAGED BY EMERALD HAS DETERMINED A

PREFERRED VALUE OF 1.62 CENTS PER EMERALD SHARE AND CONCLUDED

THAT THE OFFER IS NOT FAIR AND NOT REASONABLE

THIS IS AN IMPORTANT DOCUMENT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in doubt as to how to deal with this document, you should consult your legal, financial or

other professional adviser as soon as possible

Jeremy Shervington Barrister & Solicitor 52 Ord Street WEST PERTH WA 6005 Telephone : (08) 9481 8760 Facsimile : (08) 9481 5142 Solicitors for Emerald Oil & Gas NL

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Table of contents

Important Notices ii

Corporate Directory iii

Letter from the Chairman iv

What should you do? v

Advantages associated with accepting the Offer vi

Disadvantages associated with accepting the Offer vii

Frequently asked questions about the Offer viii

1 Directors’ recommendations 1

2 Key Terms of the Offer 3

3 Profile of Emerald 8

4 Profile of Confederate 16

5 Your choices as an Emerald Shareholder 19

6 Tax considerations 21

7 Directors’ interests 23

8 Additional information 25

9 Approval of Target’s Statement 27

10 Definitions and interpretation 28

Annexure 1 Independent Expert’s Report

Annexure 2 Emerald announcements to ASX since 1 November 2012

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Important Notices

This document is a Target’s Statement issued by Emerald under part 6.5 division 3 of the Corporations Act in

response to the Bidder’s Statement issued by Confederate. This Target’s Statement is dated 15 November

2013.

A copy of this Target’s Statement was lodged with ASIC and sent to ASX on 15 November 2013. None of ASIC,

ASX nor any of their officers take any responsibility for the content of this Target’s Statement.

This Target’s Statement and the Bidder’s Statement contain important information. You should read these

documents carefully and in their entirety.

Investment decision

This Target’s Statement does not take into consideration your individual investment objectives, financial

situation or particular needs. You may wish to seek independent financial and taxation advice before deciding

whether or not to accept the Offer by Confederate to acquire 30% of your Emerald Shares.

Shareholder information

If you have any questions in relation to the Offer, please call Emerald’s company secretary, Mr Graeme Smith,

on (+61 8) 9389 2111 on weekdays between 9.00am and 5.00pm (WST).

The Directors are committed to ensuring Emerald Shareholders are kept informed of developments.

Important developments under the control of Emerald will be notified to Emerald Shareholders.

Forward looking statements

This Target’s Statement contains forward looking statements and statements of current intentions. The

forward looking statements in this Target’s Statement reflect views held at the date of this Target’s Statement.

You should be aware that such statements involve inherent risks and uncertainties. Actual events or results

may differ materially from the events or results expressed or implied in any forward looking statement and

those deviations are both normal and to be expected.

None of Emerald, its officers or any person named in this Target’s Statement with their consent or involved in

the preparation of this Target’s Statement makes any representation or warranty as to the accuracy or

likelihood or fulfilment of any forward looking statement. You should not place undue reliance on those

statements.

Defined terms

A number of defined terms are used in this Target’s Statement. These terms are explained in the definitions in

section 10.1.

Privacy statement

Emerald has collected your information from the register of Emerald Shareholders. The Corporations Act

permits that information to be made available to certain persons, including Confederate. Your information

may also be disclosed on a confidential basis to Emerald’s related bodies corporate and external service

providers and may be required to be disclosed to regulatory bodies such as ASIC. You can contact us for

details of information held by us about you.

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Corporate Directory

Directors:

Registered & Principal Office:

Jeremy Shervington – Non-Executive Chairman Ross Williams – Non-Executive Director

Ground Floor 20 Kings Park Road

Tim Kestell - Non-Executive Director Peter Pynes - Non-Executive Director

WEST PERTH, WA, 6005 Telephone: +61 8 9389 2111 Facsimile: +61 8 9389 2199

Company Secretary: Graeme Smith

Postal Address: P.O. Box 902 WEST PERTH, WA, 6872

Auditors: Home Securities Exchange:

HLB Mann Judd ASX Ltd Level 4, 130 Stirling Street PERTH, WA, 6000

Exchange Plaza 2 The Esplanade

PERTH, WA, 6000 Solicitors:

ASX Code – EMR

Jeremy Shervington 52 Ord Street Share Registry: WEST PERTH, WA, 6005 Security Transfer Registrars Pty Ltd PO Box 535 APPLECROSS, WA, 6953 Telephone +618 9315 2333

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Letter from the Chairman

Dear Shareholder,

This letter forms part of a Target’s Statement in response to a Bidder’s Statement lodged by Confederate

Capital Pty Ltd whereby Confederate Capital is offering 1.4 cents in cash for 30% of the Emerald Shares held by

each Emerald Shareholder.

Please read the contents of this Target’s Statement and the Bidder’s Statement carefully.

You will see that the Independent Directors being Ross Williams and I each recommend as follows in relation

to how you should deal with the Offer in respect of your Emerald Shares. A full statement of our

recommendations and the reasons for them are set out in section 1.2.

Jeremy Shervington and Ross Williams each recommend that YOU DO NOT ACCEPT THE OFFER. However, if

you have a particular need or desire to liquidate part of your investment in Emerald, the Offer provides you

with a liquidity event for that purpose in respect of 30% of your Emerald Shares. However, in the absence of

such a need or desire it is noted that the value underlying each Emerald Share as attributed by the

Independent Expert is greater than the 1.4 cents offered under the Offer and that this combined with potential

future value through future transactions/investments by Emerald may lead to a higher share price being

attainable in the medium to longer term.

Mr Shervington DOES NOT INTEND TO ACCEPT THE OFFER in relation to the Emerald Shares he controls (being

8,311,915 Emerald Shares).

Mr Williams does not hold or control any Emerald Shares.

Yours faithfully,

_______________________

Jeremy Shervington

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What should you do?

You should read the Bidder’s Statement and this Target’s Statement, which contains your Independent

Directors’ recommendations as to how to deal with the Offer in the absence of a superior proposal, and their

reasons for their recommendations in section 1.2.

As an Emerald Shareholder, you have the following choices in respect of the Offer:

(a) You may ACCEPT the Offer, in which case you should complete the acceptance form in the Bidder’s

Statement and return it in accordance with the instructions on the acceptance form.

(b) You may choose to REJECT the Offer, in which case you do not need to take any action.

(c) You may sell you Emerald Shares on market, unless you have previously accepted the Offer and you have

not validly withdrawn your acceptance.

If you have any questions in relation to the Offer, please call Emerald’s company secretary, Mr Graeme Smith,

on (+61 8) 9389 2111 on weekdays between 9.00am and 5.00pm (WST).

Key Dates

Bidder’s Statement lodged with ASIC 11 October 2013

Supplementary Bidder’s Statement lodged with ASIC

29 October 2013

Date of Offer 29 October 2013

Notice Freeing Offer from Defeating Conditions 5 November 2013

Date of Target’s Statement 15 November 2013

Close of Offer Period (unless extended) 30 November 2013

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Advantages associated with accepting the Offer

The following is a summary of the key advantages associated with accepting the Offer. These key advantages

are also set out in section 13.1 of the Independent Expert’s Report.

(a) Shareholders can dispose part of their investment in Emerald with no transaction costs

The Offer is made to acquire 30% of the Emerald Shares held by each Emerald Shareholder for a cash price of

1.4 cents per Emerald Share. Emerald Shareholders will be able to dispose part of their investment in Emerald

with no brokerage costs or other associated selling costs for their Emerald Shares. The absence of the need to

incur transaction costs increases the cash received by Emerald Shareholders who accept the Offer.

(b) Shareholders can receive a higher price than what they can sell in the market

Based on BDO’s QMP analysis, the Offer allows Emerald Shareholders to receive a higher price, for 30% of their

Emerald Shares, than they are able to individually sell their Emerald Shares on the market.

(c) Shareholders will retain the opportunity to participate in the potential upside of Emerald

Emerald Shareholders will be able to obtain cash for a partial exit of their investment and still retain the

opportunity to participate in any potential upside of Emerald in respect of their remaining Emerald

Shareholding.

The Bidder’s Statement sets out the current intentions of Confederate upon it gaining effective control of

Emerald but where Confederate is not entitled to proceed to compulsory acquisition in accordance with Part

6A.1 of the Corporations Act.

The key intentions of Confederate are summarised as follows:

i. to appoint additional nominees to the Emerald Board, depending on the extent of success of the

Offer and to maintain Emerald’s listing on the ASX;

ii. to consider the potential disposal of the Emerald Oil Inc. shares held by Emerald but review and

continue current exploration programmes and budgets for Emerald’s Appalachian Project;

iii. to review Emerald’s operations on a strategic, operational and financial level to evaluate

Emerald’s performance and corporate direction; and

iv. to review potential cost savings by reducing staff numbers and/or consolidating back office work.

Depending on the outcome of the above reviews and the strategies concluded therefrom, the future business

of Emerald may not be a passive holding of a listed company’s shares, which currently constitutes Emerald’s

main asset. Any potential upside is likely to come from undertaking active operations in the oil and gas sector,

albeit that this will entail some risks. For

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Disadvantages associated with accepting the Offer

The following is a summary of the key disadvantages associated with accepting the Offer. Some of these key

disadvantages are also set out in section 13.2 of the Independent Expert’s Report.

(a) Emerald Shareholders will have their Emerald Shareholding diluted

Shareholders will have their collective Emerald Shareholdings diluted from 80.01% to 56.01% if all Emerald Shareholders accept the Offer. Emerald Shareholders will be passing a substantial amount of control to Confederate and its associates, as a

result of an increase in Confederate and its associates’ shareholding from the current 19.99% up to 43.99%.

(b) Reduction in liquidity

If Emerald Shareholders accept the Offer, trading in Emerald Shares may be negatively affected by the

presence of a major Emerald Shareholder with approximately 44% ownership. The existing Emerald Shares will

therefore have a materially lower free float on a proportional basis which may reduce liquidity.

(c) Decreases the likelihood of a full takeover offer

If all Emerald Shareholders accept the Offer, Confederate and its associates will hold approximately 44% of the

issued capital of Emerald. This may discourage any other potential bidder from making a takeover bid in the

future as Confederate and its associates will have significant control over Emerald. This may have an adverse

effect on the Emerald Share price of Emerald and may reduce the opportunity for Emerald Shareholders to

receive a takeover premium in the future.

(d) Emerald Shareholders may be giving up the opportunity to realise the fair value of their Emerald Shares

through a better potential offer

Based on BDO’s QMP analysis, the Offer allows Emerald Shareholders to receive a higher price, for 30% of their shares, than they are able to individually sell their Emerald Shares on the market. Additionally, Emerald Shareholders would not incur transaction costs associated with selling those Emerald Shares. Whilst this may suggest that it would be logical for Emerald Shareholders to accept the Offer on this basis, Emerald Shareholders may be giving up the opportunity to receive a potentially better offer that could enable them to realise the higher net asset value for their Emerald Shares on a collective basis. As the Emerald Shares are trading at lower than its net asset value per Emerald Share, Emerald Shareholders are unable to realise the fair value of their Emerald Shares of their own accord by selling them individually on the market.

However, they may be able to achieve this on a collective basis if a potentially better offer or takeover bid is

received.

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Frequently asked questions about the Offer

This section of the Target’s Statement is designed to help you understand the Offer by answering some

commonly asked questions. It is not intended to address all relevant issues for Emerald Shareholders. This

section should be read in conjunction with all other sections of this Target’s Statement.

Question Answer Further Information

Who is the bidder? The Offer is made by Confederate Capital Pty Ltd. Information about Confederate can be obtained from section 3 of the Bidder’s Statement or section 4 of this Target’s Statement.

Section 4

What is the Offer? Confederate has made an offer to acquire 30% of your Emerald Shares for 1.4 cents cash per Emerald Share. If you accept the Offer, you will: (a) receive 1.4 cents cash for each Emerald

Share comprising 30% of your Emerald Shareholding; and

(b) retain 70% of your Emerald Shares. You may only accept the Offer for 30% of the Emerald Shares held by you and not a lesser or greater amount unless by accepting the Offer, the 70% of your Emerald Shareholding that you retain has a market value of less than $500 based on the price of Emerald Shares on the day that your acceptance is received (or the most recent Business Day if your acceptance is not received on a Business Day), in which case the Offer will extend to 100% of your Emerald Shares. In this case (subject to the position described in the next two questions), Emerald Shareholders may elect to accept the Offer for either 30% or 100% of their Emerald Shares. Accepting Emerald Shareholders will only participate in 30% of any control premium pursuant to the Offer, and the balance of any Emerald Shares held after the Offer closes will not be able to be subsequently accepted into the Offer.

Section 2

What if I accept the Offer and I am left with an unmarketable parcel of Emerald Shares?

If you accept the Offer and the Emerald Shares you are left holding are worth less than $500, then the Offer will extend to all of your Emerald Shares (subject to the following question). In this case, Emerald Shareholders may elect to accept the Offer for either 30% or 100% of their Emerald Shares.

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If you are unsure whether you would be left with a Emerald Shareholding that is worth less than $500, please contact your broker or financial adviser.

Can I create, or increase the size of, an unmarketable parcel of Emerald Shares after the Offer was publicly proposed so that all of my Emerald Shares can be acquired under the Offer?

NO. ASIC class order 13/521 modifies subsection 618(2) of the Corporations Act so that it does not apply to a parcel of Emerald Shares (whether held beneficially or otherwise) worth less than $500 that has come into existence, or increased in size, because of a transaction (including the creating of one of more trusts) after the date that the Offer was publicly proposed (that date being 1 October 2013).

Section 2.14

What is a ‘proportional’ takeover bid?

A proportional takeover bid (such as the Offer) is a takeover bid for a specified proportion of the securities in a class of securities. Under the Corporations Act, the specified proportion must be the same for all holders of securities in that class. The specified proportion for the Offer is 30% of the Emerald Shares held by you.

What choices do I have as an Emerald Shareholder?

As an Emerald Shareholder, you have the following choices: (a) you can accept the Offer in the absence

of a superior proposal;

(b) you can reject the Offer; or

(c) you can sell your Emerald Shares on market (unless you have previously accepted the Offer and have not validly withdrawn your acceptance).

When deciding what to do, you should carefully consider the Independent Directors’ recommendations and other important considerations set out in this Target’s Statement.

Section 5

What do your Independent Directors recommend?

Jeremy Shervington and Ross Williams both recommend (in summary) that you DO NOT ACCEPT THE OFFER. The Independent Directors’ full recommendations and reasons are set out in section 1.2.

Section 1.2

How do I accept the Offer? Details of how to accept the Offer are set out in section 2.7 of the Bidder’s Statement and section 5.1 of this Target’s Statement.

Section 5.1

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How do I reject the Offer? To reject the Offer, you do not need to do anything.

Section 5.3

Can Confederate vary the Offer? Yes, Confederate can vary the Offer by extending the Offer Period or increasing the Offer Price.

Section 2.12

When does the Offer close? The Offer will close at 5.00pm (WST) on 30 November 2013, unless it is extended or withdrawn.

Section 2.3

What happens if Confederate increases the consideration payable under the Offer?

If Confederate increases the consideration payable under the Offer, you will receive the higher consideration even if you have already accepted the Offer.

Section 2.12

What was the effect of the Notice Freeing Offer From Defeating Conditions?

Pursuant to the Notice Freeing Offer From Defeating Conditions, Confederate declared the Offer free of all Defeating Conditions, and the Offer is now unconditional.

Is the Offer conditional? No. The Offer is unconditional, pursuant to the Notice Freeing Offer From Defeating Conditions dated 5 November 2013, whereby Confederate declared that the Offers, and each contract formed pursuant to the acceptances of the Offer, are free from all Defeating Conditions.

Section 2.7

What are the consequences of accepting the Offer now?

If you accept the Offer, unless withdrawal rights are available, you will not be able to sell your Emerald Shares accepted under the Offer on the ASX or to any other bidder that may make a takeover offer, or otherwise deal with your Emerald Shares accepted under the Offer while the Offer remains open.

See section entitled “Disadvantages associated with accepting the Offer”

What if I want to sell my Emerald Shares on market?

During the Offer Period, you may sell your Emerald Shares on ASX, provided you have not accepted the Offer for those Emerald Shares. You should contact your Broker for information on how to sell your Emerald Shares on ASX and your tax adviser to determine your tax implications of such a sale. If you accept the Offer in respect of 30% of your Emerald Shares, you are not entitled to accept the Offer for your remaining Emerald Shares (“Remaining Shares”), nor can a transferee of your Remaining Shares. You may sell your Remaining Shares on a “ex-Offer” basis and a separate ASX code will be established for these ex-Offer Emerald Shares.

Section 5.2

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Ex-Offer Emerald Shares cannot be accepted into the Offer and will trade separately to Emerald Shares which can be accepted into the Offer during the Offer Period. The market price of the ex-Offer Emerald Shares may be lower than the market price of the Emerald Shares which may be accepted into the Offer. Settlement of trades on ex-Offer Emerald Shares will be deferred until after completion of the Offer. If you do not accept the Offer in respect of 30% of your Emerald Shares, you may sell your Emerald Shares on market and the transferee will be entitled to accept the Offer in respect of 30% of the Emerald Shares.

If I accept the Offer, can I withdraw my acceptance?

Given that Confederate has provided Emerald with the Notice Freeing Offer From Defeating Conditions, and therefore, the Offer is unconditional, there is no right to withdraw an acceptance of the Offer.

Section 2.6

What happens if I do nothing? You will remain an Emerald Shareholder. However, as a result of the Offer, Confederate may obtain an Emerald Shareholding of approximately 43.99% increasing its ability to control Emerald, resulting in other Emerald Shareholders retaining only minority shareholdings. The maximum Emerald Shareholding that Confederate can acquire under the Offer (i.e. if all Emerald Shareholder accept the Offer) is approximately 30% of all Emerald Shares on issue.

See section entitled “Disadvantages associated with accepting the Offer” and section 5.3

Can I be forced to sell my Emerald Shares?

You cannot be forced to sell your Emerald Shares unless Confederate acquires a relevant interest of at least 90% of all Emerald Shares. Due to the proportional nature of the Offer, it will not be possible for Confederate to become entitled to proceed to compulsory acquisition of the remaining Emerald Shares under the Corporations Act as a result of the Offer.

When will I receive my consideration if I accept the Offer?

If you accept the Offer, you will receive your consideration by the earlier of: (a) one month after the later of:

i. the date you accept the Offer;

and

ii. the date the Offer becomes

Section 2.11

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unconditional (which was 5 November 2013) ; and

(b) 21 days after the end of the Offer Period provided that the Offer has become unconditional (which it did on 5 November 2013).

What are the tax implications of accepting the Offer?

A general outline of the tax implications of accepting the Offer is set out in section 8 of the Bidder’s Statement and also in section 6 of this Target’s Statement. You should consult your financial or taxation adviser for advice on the taxation implications applicable to your financial circumstances.

Section 6

Why have the Directors obtained an independent expert’s report?

Confederate and Emerald have two common directors (namely Tim Kestell and Peter Pynes) and as such, pursuant to section 640 of the Corporations Act, this Target’s Statement must be accompanied by an expert’s report that states whether the Offer is fair and reasonable and gives reasons for forming that opinion. BDO have formed the opinion that the Offer is NOT FAIR and NOT REASONABLE and their reasons for forming this opinion are set out in the Expert’s Report attached as Annexure 1.

What if I have questions about the Offer?

If you have any questions in relation to the Offer, please call Emerald’s company secretary, Mr Graeme Smith, on (+61 8) 9389 2111 on weekdays between 9.00am and 5.00pm (WST). Announcements made to the ASX by Emerald and other information relating to the Offer can be obtained from Emerald’s website (www.emeraldoilandgas.com) and the ASX’s website (www.asx.com.au).

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1. Directors’ recommendations

1.1. Summary of the Offer

Confederate is offering to acquire 30% of your Emerald Shares for 1.4 cents for each Emerald Share acquired

by Confederate under the Offer. The Offer, as from 5 November 2013, pursuant to the Notice Freeing Offer

From Defeating Conditions became unconditional.

1.2. Directors’ recommendations

After taking into account the terms of the Offer, and the matters in this Target’s Statement, the

recommendations of Emerald’s Independent Directors, Jeremy Shervington and Ross Williams, in relation to

the Offer are set out below:

Mr Shervington and Mr Williams both recommend that you DO NOT ACCEPT THE OFFER. However, Mr

Shervington and Mr Williams both note that if you have a need or desire to liquidate part of your investment

in Emerald then the Offer provides a liquidity event that will enable you to do so in respect of 30% of your

Emerald Shares, perhaps more readily and with more certainty than by selling those shares on market. Apart

from that consideration, Mr Shervington and Mr Williams note that the Independent Expert has ascribed a

preferred value of 1.62 cents for each Emerald Share and on the basis of that conclusion they both

recommend that you DO NOT ACCEPT THE OFFER. However it should be noted that there is a risk that shares

in Emerald will trade at below 1.4 cents.

Mr Williams also notes that he was suggested as a Director by Peter Pynes and Tim Kestell (the directors of

Confederate), but is nonetheless an Independent Director.

As outlined elsewhere in this Target’s Statement:

Mr Tim Kestell is a non-executive director of Emerald and a director of Confederate; and

Mr Peter Pynes is a non-executive director of Emerald and a director of Confederate.

Both Mr Kestell and Mr Pynes have refrained from making a recommendation in relation to the Offer due to

their interests as directors of Confederate, and their controlled entities’ (Desertfox and P & L respectively)

shareholdings in Confederate.

1.3. Directors’ acceptance of the Offer

At the date of this Target’s Statement, none of the Directors have accepted the Offer for the relevant portion

of Emerald Shares held or controlled by them.

Details of the relevant interests of each Director in Emerald Shares are set out in section 7.1.

1.4. Directors’ intentions

As at the date of this Target’s Statement, the Directors’ intentions in relation to the Offer for the Emerald

Shares held or controlled by them are as follows:

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Jeremy Shervington:

Mr Shervington DOES NOT intend to accept the Offer in relation to the Emerald Shares he controls (being

8,311,915 Emerald Shares).

Ross Williams:

At the date of this Target’s Statement Mr Williams does not hold or control any Emerald Shares.

Tim Kestell:

At the date of this Target’s Statement, Mr Kestell’s interest in Emerald Shares (other than those Emerald

Shares which have been accepted into the Offer at the date of this Target’s Statement) is held via Desertfox

which is an associate of Confederate, and as such, will not be accepted into the Offer.

Peter Pynes:

At the date of this Target’s Statement, Mr Pynes’ interest in Emerald Shares (other than those Emerald Shares

which have been accepted into the Offer at the date of this Target’s Statement) is held via P & L which is an

associate of Confederate, and as such, will not be accepted into the Offer.

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2. Key terms of the Offer

2.1. Background

On 1 October 2013, it was announced that Confederate intended to make an off-market proportional takeover

bid for 30% of the issued Emerald Shares. On 11 October 2013, Confederate lodged its Bidder’s Statement

with ASIC and gave a copy to Emerald. On 29 October 2013, Confederate lodged its Supplementary Bidder’s

Statement with ASIC and gave a copy to Emerald. On 5 November 2013, Confederate lodged the Notice

Freeing Takeover Offer From Defeating Conditions with ASIC and gave a copy to Emerald.

The Bidder’s Statement contains the Offer.

2.2. Summary of the Offer

The Offer is a proportional offer whereby Confederate has made offers to purchase a percentage of each

Emerald Shareholding.

The Offer is to acquire 30% of your Emerald Shares and any rights attaching to those Emerald Shares for 1.4

cents cash per Share.

This means if you accept the Offer, you will retain 70% of your Emerald Shares and receive 1.4 cents cash per

Share for the 30% of your Emerald Shares accepted into the Offer. The Offer extends to all Emerald Shares on

issue on or before the end of the Offer Period, other than those Emerald Shares already held by Confederate

and its associates.

2.3. Offer Period

The Offer will remain open for acceptance until 5.00pm (WST), 30 November 2013, unless extended or

withdrawn in accordance with the Corporations Act.

Confederate may extend the Offer Period before the end of the Offer Period in accordance with the

Corporations Act. To extend the Offer Period, Confederate must lodge a notice of variation with ASIC and give

notice to Emerald and each Emerald Shareholder to whom an offer was made under the Offer.

In addition, there will be an automatic extension of the Offer Period if, within the last 7 days of the Offer

Period:

(a) Confederate improves the consideration under the Offer; or

(b) Confederate’s voting power in Emerald Shares increases to more than 50%.

If either of these events occurs, the Offer Period is automatically extended so that it ends 14 days after the

relevant event occurs.

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2.4. Withdrawal of the Offer

Confederate may not withdraw its Offer if you have already accepted it. Before you accept the Offer,

Confederate may withdraw its Offer with the written consent of ASIC and subject to the conditions (if any)

specified in that consent.

2.5. Effect of acceptances

If you accept the Offer, you will give up your right to sell 30% of your Emerald Shares that you have accepted

into the Offer on ASX or to any competing bidder or to deal with them in any other manner. The agreement

that results from acceptance of the Offer is set out in detail in section 7 of the Annexure to the Bidder’s

Statement. Section 7 of the Annexure to the Bidder’s Statement describes the rights attached to your Emerald

Shares that you will be giving up, the representations and warranties that you will be making and the

irrevocable authorities and appointments that you will be giving Confederate if you accept the Offer. Please

note that the Directors do not take any responsibility for the contents of the Bidder’s Statement and are not

endorsing any of the statements contained in it.

The remaining 70% of your Emerald Shares that are not able to be accepted into the Offer can be dealt with in

any manner. However, if you sell these Emerald Shares, they will trade on ASX on an ‘ex-Offer’ basis, meaning

that purchasers of those Emerald Shares will not be entitled to accept the Offer and settlement of these

Emerald Shares will be deferred until the end of the Offer Period.

2.6. No right to withdraw your acceptance

Given that, pursuant to the Notice Freeing Takeover Offer From Defeating Conditions, the Offer became

unconditional, if you accept the Offer, there will be not right to withdraw your acceptance of the Offer if you

do accept.

2.7. Unconditional Offer – Notice Freeing Takeover Offer From Defeating Conditions

The Offer was subject to those Defeating Conditions set out in full in section 6.1 of the Annexure to the

Bidder’s Statement, which are summarised below:

(a) a majority of the Emerald Board being made up of Confederate Nominees;

(b) Emerald not proceeding with an alternative proposal from a third party;

(c) there is no Prescribed Occurrence;

(d) there is no Material Adverse Change; and

(e) no change to the capital structure of Emerald and its subsidiaries.

Confederate, pursuant to the Notice Freeing Takeover Offer From Defeating Conditions, waived all of these

Defeating Conditions under the Corporations Act, thereby making the Offer unconditional.

2.8. Notice of Status of Conditions

The Bidder’s Statement states that Confederate will give its Notice of Status of Conditions to ASX and Emerald

as required by section 630(1) of the Corporations Act (being not more than 14 days and not less than 7 days

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before the end of the Offer Period). If the offer Period is extended by a period before the time by which

Notice of Status of Conditions is to be given, the date for giving the Notice of Status of Conditions will be taken

to be postponed for the same period. If there is such an extension, Confederate is required, as soon as

possible after the extension, to give notice to ASX and Emerald that states the new date for giving of the

Notice of Status of Conditions.

Confederate is required to set out in its Notice of Status of Conditions:

(a) whether the Offer is free of any or all Defeating Conditions;

(b) whether, so far as Confederate knows, and of the Defeating Conditions have been fulfilled; and

(c) Confederate’s voting power in Emerald.

Given that, pursuant to the Notice Freeing Takeover Offer From Defeating Conditions, the Offer became

unconditional, the only new information that will be provided in the Notice of Status of Conditions will be

Confederate’s voting power in Emerald.

2.9. Sources of Consideration for the Offer

As set out in Section 6 of the Bidder’s Statement, the consideration for the acquisition of the Emerald Shares

to which the Offer relates will be satisfied wholly in cash.

The maximum amount of cash that Confederate would be required to pay under the Offer if acceptances are

received in respect of all Emerald Shares on issue at the date of this Target’s Statement (other than those

Emerald Shares held by Confederate and its associates) would be approximately $3,171,215.48.

Confederate does not currently have existing cash reserves available to pay the consideration under the Offer.

Confederate will fund the cash payable under the Offer using cash provided by the following entities:

(a) Desertfox – an entity controlled by Mr Tim Kestell (a director of both Emerald and Confederate);

(b) OBG – an entity controlled by Mr Tim Kestell (a director of both Emerald and Confederate);

(c) P & L – an entity controlled by Mr Peter Pynes (a director of both Emerald and Confederate) and his wife,

Lara Pynes; and

(d) Quicksilver – an entity controlled by Lara Pynes,

(together the Lenders) pursuant to a loan agreement dated 2 October 2013 (Loan Agreement).

Pursuant to the Loan Agreement, the Lenders have irrevocably and unconditionally agreed to advance to

Confederate such amounts as are required to satisfy Confederate’s obligations under the Offer, together with

amounts required to cover all transaction costs associated with the Offer, on the following terms:

(a) the funding arrangement is non-interest bearing;

(b) the funds may be used for the sole purpose of making payment of the consideration payable under the

Offer;

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(c) the funds are available at any time and the right to request an advance is not subject to any conditions

precedent; and

(d) the funding remains available at any time during which consideration is payable under the Offer.

Under the terms of the Loan Agreement, the proportions of funding the Offer between the Lenders has been

agreed to be as follows:

(a) Desertfox and OBG together will lend up to 50% of the required funds in such proportions between them

as Desertfox determines; and

(b) P & L and Quicksilver together will lend up to 50% of the required funds in such proportions between

them as P & L determines.

The events of default under the Loan Agreement are Confederate failing to use funds advanced for the

purpose of making payment of consideration under the Offer, Confederate becoming insolvent or Confederate

failing to repay any amounts to the Lenders when they are due and payable.

In the event that an event of default occurs under the Loan Agreement, a Lender may issue a default notice to Confederate and Confederate shall have a period of 7 days to remedy the default. If Confederate fails to remedy the default, the Lenders may seek to terminate the Loan Agreement, in which case, Confederate must repay the moneys owing under the Loan Agreement within 12 months of termination. The Offer is not subject to any financing conditions.

Emerald makes no representation whatsoever in relation to Confederate’s ability (whether pursuant to the

Loan Agreement or otherwise) to pay the consideration required for the acquisition of Emerald Shares

pursuant to the Offer to satisfy its obligation under the Offer.

2.10. Effect of acceptance

The effect of acceptance of the Offer is set out in section 7 of the Annexure to the Bidder’s Statement.

Read that section in full to understand the effect that acceptance will have on your ability to exercise the rights

attaching to your Emerald Shares and the representations and warranties which you give by accepting the

Offer. In particular, if you accept the Offer, you may forfeit the opportunity to benefit from any superior offer

made by another bidder for your Emerald Shares, if such an offer were to eventuate. If you accept the Offer

you will not be able to sell your Emerald Shares the subject of that acceptance on ASX.

Emerald Shareholders should read section 7 of the Annexure to the Bidder’s Statement in light of the Notice

Freeing Takeover Offer From Defeating Conditions, which made the Offer unconditional.

2.11. Payment of consideration

Confederate has set out in section 5 of the Annexure to the Bidder’s Statement, the timing of the payment of

consideration to holders of Emerald Shares who accept the Offer. In general terms, you will receive the

consideration to which you are entitled under the Offer by the earlier of:

(a) a month after the later of:

i. the date you accept the Offer; and

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ii. the date the Offer becomes unconditional (which was 5 November 2013); and

(b) 21 days after the end of the Offer Period.

2.12. Changes to the Offer

Confederate can vary the Offer by:

(a) extending the Offer Period; or

(b) increasing the consideration offered under the Offer.

If you accept the Offer and Confederate subsequently increases its Offer Price, you are entitled to receive the

higher price.

2.13. Emerald Options

Emerald Option holders whose Options are exercised into Emerald Shares during the Offer Period will not be

able to accept the Offer in respect of those Emerald Shares issued. Confederate is not making a separate offer

to holders of Emerald Options.

2.14. Unmarketable Parcels

As set out in section 1.3 of the Annexure to the Bidder’s Statement (which was modified by the Supplementary

Bidder’s Statement), if accepting the Offer would leave an Emerald Shareholder with a parcel of Emerald

Shares that has a value of less than $500 (based on the closing price of Emerald Shares on ASX the day before

the Emerald Shareholder accepts the Offer) (“Small Parcel”) the Offer extends to that Small Parcel.

ASIC Class Order 13/521 modifies section 618(2) of the Corporations Act so that it does not extend to Small

Parcels (whether held beneficially or otherwise) that have come into existence, or increased in size, because of

a transaction (including the creation of one or more trusts) entered into after the Offer was publicly proposed.

As such, Small Parcels created by (for example):

(a) splitting large holdings into smaller parcels and then seeking to accept the Offer for all of your Emerald

Shares; or

(b) repeatedly purchasing and accepting into the Offer holdings that are Small Parcels;

are not able to be accepted into the Offer.

Full details on the treatment of Small Parcel’s under the Offer is set out in section 1.3 of the Annexure to the

Bidder’s Statement as amended by the new section 1.3 set out in the Supplementary Bidder’s Statement.

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3. Profile of Emerald

3.1. Overview of Emerald and its Principal Activities

(a) History and operations

Emerald is a petroleum exploration and production company, listed on ASX. Emerald’s head

office is located in West Perth, Australia.

Emerald’s major asset is a substantial equity interest in Emerald Oil Inc. (NYSE:EOX), an active

Williston Basin operating company listed on the New York Stock Exchange. In addition, Emerald

holds exploration and production interests in the Appalachian Gas Project located in Magoffin

County, Kentucky.

At the date of this Target’s Statement, Emerald has 943,651,304 Emerald Shares on issue,

comprising approximately 1500 Shareholders including Confederate which has a relevant interest

in approximately 24.73% of the Emerald Shares on issue (including those Emerald Shares

accepted into the Offer). Details of the substantial shareholders of Emerald are set out in section

3.8.

i. Emerald Oil Inc.

On 26 July 2012, Emerald completed a transaction whereby Voyager Oil and Gas Inc.

(AMEX:VOG) (Voyager), a publicly listed company in the United States, acquired Emerald Oil

Inc. (Emerald’s then wholly owned subsidiary) for 11,635,217 shares in Voyager. Voyager

subsequently changed its trading name to Emerald Oil Inc. (EOX), retaining its listing on the

New York Stock Exchange (NYSE:EOX) and implemented a 7 for 1 share split, consolidating

Emerald’s holding in EOX to 1,662,174 shares.

In May 2013, a meeting of Emerald Shareholders was held to consider distributing the EOX

shares in specie to Emerald Shareholders. Shareholder approval was not obtained for the in

specie distribution at that meeting.

On 8 October 2013, OGH sought to requisition a meeting for the in specie distribution of

Emerald’s interest in EOX. This requisition request was formally withdrawn as announced to

ASX on 18 October 2013.

Further information about EOX and Emerald’s interest therein is contained in section 5.2 of

the Independent Expert’s Report and the Independent Expert’s valuation thereof is

contained in section 10.1 of the Independent Expert’s Report.

ii. Canning Basin Project

As announced to ASX on 29 July 2013, Emerald entered into an agreement with Key

Petroleum Limited (ASX:KEY) to sell all of Emerald’s interest in the Canning Basin Project for 4

million shares in the capital of Key, and $50,000 cash. Emerald has provided to Key the

required transfer documentation and has received the $50,000 cash consideration

component, and will be issued the 4 million shares in the capital of KEY following KEY’s

annual general meeting, which is scheduled to be held on 13 November 2013.

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iii. Appalachian Gas Project

Emerald’s Appalachian gas operations are operated through Kentucky Energy Partners, a

company 75% owned by Emerald. KEP currently holds 2,5000 lease acres with 29 existing

wells potentially capable of gas production, as well as an 8 mile long gas gathering pipeline

and gas conditioning/compression facilities.

Further information about the Appalachian Gas Project is contained in section 5.3 of the

Independent Expert’s Report and the Independent Expert’s valuation thereof is contained in

section 10.2 of the Independent Expert’s Report.

iv. Cash Position

Emerald’s cash position at the date of this Target’s Statement has reduced from the position

set out in Emerald’s quarterly report for the period ended 30 September 2013. Given this

relatively modest cash position, the Company may, in the near term be required to raise

further cash. This could be achieved in a variety of ways, including by a capital raising (which

could be take place by placement, rights issue or otherwise), by liquidating a portion of

Emerald’s investment in EOX, or by borrowings.

(b) Ochre Scheme of Arrangement and In Specie Distribution Proposal

As announced on 2 August 2013, Emerald entered into a scheme implementation deed with

Ochre Group Holdings Limited. The implementation deed set out the steps in implementation a

scheme of arrangement under which Emerald Shareholders would receive 1 fully paid ordinary

share in OGH in exchange for every 2.75 Emerald Shares held.

As announced on 8 October 2013, Emerald and OGH mutually agreed to terminate the scheme

implementation deed, with no break fee payable to either party. Subsequently, as announced on

8 October 2013, OGH sought to requisition a meeting of Emerald Shareholders seeking a

resolution for a reduction of capital and in specie distribution of Emerald’s interest in EOX. This

requisition request was formally withdrawn as announced to ASX on 18 October 2013.

According to its latest substantial shareholder notice given to ASX, OGH (via its wholly owned

subsidiary, Ochre Petroleum Pty Ltd) has a relevant interest in 155,650,000 Emerald Shares.

3.2. Directors

The Directors of Emerald at the date of this Target’s Statement are set out below.

Jeremy Shervington – Non Executive Chairman

Mr Shervington operates a legal practice in Western Australia. He specialises in the laws regulating companies

and the securities industry in Australia. Mr Shervington has over 30 years’ experience as a lawyer, gained since

admission as a Barrister and Solicitor of the Supreme Court of Western Australia. Mr Shervington has since

1983 served as a Director of various ASX listed companies as well as a number of unlisted public and private

companies.

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Ross Williams – Non Executive Director

Mr Williams is a founding shareholder of MACA Limited (ASX: MLD) and continues to fulfil the role of Financial

Director. Mr Williams also has 16 years banking experience having held executive positions with a major

Australian Bank. Mr Williams is a past fellow of the Australian Institute of Banking and Finance and holds a

Post Graduate Diploma in Financial Services Management.

Tim Kestell - Non Executive Director

Mr Kestell has over 15 years’ experience in equity markets, including working for Australian stockbrokers Euroz Securities and Patersons. In the past decade, Mr Kestell has played a key role in forming and/or recapitalising publicly listed companies, and raising more than $70,000,000 in the process as well as being involved in numerous takeovers, including Barrick Gold Limited's offer for Tusker Gold Limited. Mr Kestell holds a Bachelor of Commerce degree and is currently a non executive director of ASX listed

company Emmerson Resources Limited and Blue Capital Limited.

Mr Kestell is also a director of Confederate and controls 50% of the shares in Confederate.

Peter Pynes – Non Executive Director

My Pynes has in excess of 20 years’ experience in Australia and overseas capital markets. He previously worked at Deutsche Bank as a director, global markets where he gained extensive knowledge of global structured debt products as well as capital raising and syndication. In this role Mr Pynes established relationships with leading Australian investment institutions, which included his involvement in $350m of ASX listed structured debt transactions and in excess of $3.8 billion of ASX listed hybrid and convertible investments. In the past decade, Mr Pynes has played a key role in forming and capitalising both public listed and unlisted companies. Mr Pynes has been involved in both initial public offerings and takeovers, including the listing on the ASX of Tusker Gold Limited and its successful cash takeover by Barrick Gold Limited. Mr Pynes is a director of MPC Funding Limited, a specialist financing company providing in excess of $450m of loan funds for the development of the Melbourne Convention Centre, Nexus Bonds Limited and Blue Capital Limited. Mr Pynes is a Fellow of the Australian Institute of Company Directors (FAICD) and a Senior Associate of

Financial Services Institute of Australia (SA FIN).

Mr Pynes is also a director of Confederate and controls 50% of the shares in Confederate.

3.3. Summary of historical financial information

The summary historical financial information below has been extracted from Emerald’s audited financial

statements for the year ended 30 June 2013 and does not take into account the effects of the Offer.

Copies of Emerald’s annual report from which the financial information contained in this Target’s Statement

was extracted can be found on Emerald’s website at www.emeraldoilandgas.com. These reports also contain

details of Emerald’s accounting policies and the notes and assumptions that accompany the financial

statements. If you would like to receive a copy of any of these documents, please contact Emerald’s company

secretary on (+618) 9389 2111 between 9.00am to 5.00pm (WST) Monday to Friday.

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Consolidated Statement of Comprehensive Income for the year ended 30 June 2013

2013

2012

$ $ Revenue 107,878 123,326 Cost of Sales (153,503) (141,097)

Gross loss (45,625) (17,771) Other income - 389,263 Corporate, legal and administration expenses (680,579) (602,858) Consulting and contracting expenses (286,237) (413,539) Fair value losses on financial assets (128,689) - Other expenses - (794,661)

Loss from operating activities (1,141,130) (1,439,566) Finance income 44,526 93,901 Finance expense (34,460) (1,346)

Net finance income 10,066 92,555

Loss before income tax (1,131,064) (1,347,011) Income tax benefit - -

Loss from continuing operations (1,131,064) (1,347,011) Loss from discontinued operations (6,671,291) (8,416,604)

Loss for the year (7,802,355) (9,763,615)

Other comprehensive (loss) income Items that may be reclassified to profit or loss Exchange differences on translation of foreign operations (207,403) 1,171,053 Reclassification adjustments Transfer of foreign exchange reserve on disposal of discontinued operations (811,915) -

Other comprehensive (loss) income for the year (1,019,318) 1,171,053

Total comprehensive loss for the year (8,821,673) (8,592,562)

Loss for the year is attributable to: Owners of the parent (7,736,915) (9,695,166) Non-controlling interest (65,440) (68,449)

(7,802,355) (9,763,615)

Total comprehensive loss for the year is attributable to: Owners of the parent (8,774,397) (8,526,570) Non-controlling interest (47,276) (65,992)

(8,821,673) (8,592,562)

Basic loss per share for loss from continuing operations attributable to owners of the parent (cents)

(0.113) (0.155)

Basic loss per share for loss attributable to owners of the parent (cents)

(0.822) (1.175)

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Consolidated Statement of Financial Position as at 30 June 2013

2013 2012 $ $ CURRENT ASSETS Cash and cash equivalents 403,672 504,457 Trade and other receivables 40,242 22,073 Financial assets at fair value through profit or loss 12,485,233 - Assets classified as held for sale - 39,737,682

Total current assets 12,929,147 40,264,212 NON-CURRENT ASSETS Property, plant and equipment 182,037 191,563 Exploration and evaluation expenditure 389,068 339,902 Oil and gas assets 530,149 569,684

Total non-current assets 1,101,254 1,101,149

TOTAL ASSETS 14,030,401 41,365,361

CURRENT LIABILITIES Trade and other payables 64,024 172,465 Loans and borrowings - 363,065 Other creditors - 1,076,391 Liabilities classified as held for sale - 17,693,803

Total current liabilities 64,024 19,305,724

TOTAL LIABILITIES 64,024 19,305,724

NET ASSETS 13,966,377 22,059,637

EQUITY Issued capital 46,356,181 45,627,768 Reserves 1,059,713 2,070,580 Accumulated losses (33,539,990) (25,803,075)

Total equity attributable to owners of the parent 13,875,904 21,895,273 Non-controlling interest 90,473 164,364

TOTAL EQUITY 13,966,377 22,059,637

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Consolidated Statement of Cash Flows for the year ended 30 June 2013

2013 2012 $ $

Receipts from customers 99,931 343,765 Interest received 44,526 93,901 Interest paid (35,806) - Payments to suppliers and employees (1,304,580) (4,332,663)

Net cash used in operating activities (1,195,929) (3,894,997)

CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property, plant and equipment - (38,465) Exploration and evaluation expenditure (1,684,200) (20,680,951) Proceeds on sale of subsidiary, net of cash disposed 1,657,328 - Payment for equity investments - (276,315) Purchase of oil and gas assets - (1,173,631) Settlement of Noxxe litigation - 373,762

Net cash used in investing activities (26,872) (21,795,600)

Proceeds from borrowings 1,875,354 15,021,047 Repayment of borrowings (363,065) - Proceeds from issue of shares 569 3,085,795 Capital raising costs (103,017) (236,944)

Net cash provided by financing activities 1,409,841 17,869,898

Net increase/(decrease) in cash and cash equivalents 187,040 (7,820,699) Cash and cash equivalents at the beginning of the year 565,742 8,385,274 Effect of exchange rates on cash holding in foreign currencies (349,110) 1,167

Cash and cash equivalents at the end of the year 403,672 565,742

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3.4. Recent share price performance

Emerald Shares are quoted on ASX under the code EMR. The graph below shows the price at which Emerald

Shares have traded in the 12 months up to close of market on 11 November 2013.

Since the announcement to ASX of Confederate’s intention to make the Offer on 1 October 2013 to 11

November 2013, Emerald Shares have traded on ASX within the range of $0.012 to $0.014.

3.5. Publicly available information

Emerald is a company listed on ASX and is subject to the periodic and continuous disclosure requirements of

the Listing Rules and the Corporations Act. A substantial amount of information on Emerald is publicly

available and may be accessed by referring to Emerald on www.asx.com.au.

A list of announcements made by Emerald between 1 November 2012 and the date of this Target’s Statement

is set out in Annexure 2. This information may be relevant to your assessment of the Offer. Copies of the

announcements are available from the ASX.

Further announcements regarding developments in relation to the Offer will continue to be made available on

Emerald’s website at www.emeraldoilandgas.com and www.asx.com.au after the date of this Target’s

Statement.

3.6. Further information

Further information about Emerald can be found on Emerald’s website at www.emeraldoilandgas.com.

3.7. Issued capital

(a) Shares

As at the date of this Target’s Statement, Emerald had 943,651,304 fully paid ordinary shares on issue and

quoted on ASX.

(b) Options

As at the date of this Target’s Statement, Emerald had 167,600,000 Options on issue as follows:

i. 117,600,000 Options exercisable for $0.05 on or before 30 April 2014; and

ii. 50,000,000 Options exercisable for $0.05 on or before 28 June 2014.

The Offer does not extend to Shares issued on any exercise of Options.

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3.8. Substantial holders

Substantial holder notices lodged with ASX before the date of this Target’s Statement indicted that the

following individuals or entities (together with any of their associates) have relevant interests in 5% or more of

Emerald’s Shares:

Name Emerald Shares Voting Power (%)

Confederate Capital Pty Ltd1 223,365,101 24.73%

Ochre Petroleum Pty Ltd 155,650,000 16.49%

HSBC Custody Nominees Aust Ltd 55,500,873 5.88% * Based on the most recent substantial shareholder notices lodged with ASX. 1. Confederate’s relevant interest includes those Emerald Shares held by P & L and Desertfox, as well as those Emerald Shares

(being 44,765,101) to which Confederate has obtained a relevant interest via acceptances of the Offer.

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4. Profile of Confederate

4.1. Disclaimer

The following information about Confederate has been prepared by Emerald using publicly available

information, including information in the Bidder’s Statement, and has not been independently verified.

Accordingly, Emerald does not, subject to the Corporations Act, make any representation or warranty, express

or implied, as to the accuracy or completeness of this information.

The information on Confederate in this Target’s Statement should not be considered comprehensive.

4.2. Introduction to Confederate

As set out in section 3.1 of the Bidder’s Statement, Confederate is a privately held company incorporated on

27 September 2013 as a special purpose vehicle for making the Offer. Confederate’s registered office is

located in Perth, Australia.

The current shareholders of Confederate are:

(a) P & L – 1 Confederate Share; and

(b) Desertfox – 1 Confederate Share.

Confederate is not currently a registered holder of Emerald Shares. However, P & L and Desertfox are each

currently registered holders of 94,300,000 Emerald Shares (being respective interests of 9.99% in the Emerald

Shares on issue at the date of this Target’s Statement). As a result, Confederate and its associates held a total

of 188,600,000 Emerald Shares (being a 19.99% interest in the Emerald Shares on issue at the date of the

Bidder’s Statement).

At the date of this Target’s Statement (based on the most recent substantial shareholder notice lodged with

ASX), Confederate has acquired a relevant interest in 44,765,101 Emerald Shares as a result of contracts arising

upon acceptances of the Offer. As a result, Confederate and its associates have a relevant interest in a total of

233,365,101 Emerald Shares (being a 24.73% interest in the Emerald Shares on issue at the date of this

Target’s Statement).

4.3. Overview of Confederate and its Principal Activities

(a) History and operations

Due to Confederate being recently incorporated, it does not have any significant track record or investments

or returns to investors. Confederate does not have any subsidiaries, interests in any other companies or assets

or carry on any activities other than as described in section 3 of the Bidder’s Statement.

Confederate:

i. has not lodged any financial statements with ASIC; and

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ii. is not listed on any recognised stock exchange and therefore is not subject to the periodic and continuous

disclosure requirements of the Listing Rules.

(b) Financial information on Confederate

While Confederate does not have any significant track record of investments or returns to investors, it has

entered into the Loan Agreement with its current shareholders and their associated entities for the purpose of

funding the Offer. Further details of the Loan Agreement are set out in section 6.2 of the Bidder’s Statement

and section 2.9 of this Target’s Statement.

4.4. Directors

The directors of Confederate at the date of this Target’s Statement are:

(a) Mr Tim Kestell; and

(b) Mr Peter Pynes.

Profiles of Messrs Kestell and Pynes are set out in section 3.2(b) of the Bidder’s Statement and section 3.2 of

this Target’s Statement.

4.5. Sources of Consideration for the Offer

The sources of the consideration for the acquisition of the Emerald Shares under the Offer are set out in

section 6 of the Bidder’s Statement and section 2.9 of this Target’s Statement.

4.6. Confederate’s intentions in relation to Emerald

Confederate’s intentions in relation to Emerald are set out in section 7 of the Bidder’s Statement.

4.7. Publicly available information about Confederate

Confederate is required to lodged various documents with ASIC. Copies of documents lodged with ASIC by

Confederate may be obtained from, or inspected at, an ASIC office.

4.8. Confederate Shareholder Information

(a) P & L

P&L is a privately held company which was incorporated as an investment vehicle for the benefit of its shareholders. The current directors and shareholders of P&L are Peter Pynes and his wife Lara Pynes who each hold 1 fully paid ordinary share in the capital of P&L. P&L does not carry on or run an active business. It holds equity and property assets on behalf of its members. In addition, P&L acts as trustee for the P & L Capital Trust, a family trust which has been formed to hold assets on behalf of its beneficiaries who are all of the members of Peter Pynes’ immediate family. Other than its interests in Confederate (set out in section 3.1 of the Bidder’s Statement and section 4.2 of this Target’s Statement) and Emerald (set out in section 5.4 of the Bidder’s Statement and section 4.2 of this Target’s Statement), P&L holds 100,000 fully paid ordinary shares in the capital of Indago Resources Pty Ltd (Indago) and 10,001 fully paid ordinary shares in the capital of Capital Custodians Australia Pty Ltd.

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(b) Desertfox

Desertfox is a privately held company which was incorporated as an investment vehicle for the benefit of its shareholders. The sole director and shareholder of Desertfox is Tim Kestell. Desertfox does not carry on or run an active business. It holds cash and equity assets on behalf of its members. In addition, Desertfox acts as trustee for the Kestell Family Trust, a family trust which has been formed to hold assets on behalf of its beneficiaries who are all of the members of Tim Kestell’s immediate family. Other than its interests in Confederate (set out in section 3.1 of the Bidder’s Statement and section 4.2 of this Target’s Statement) and Emerald (set out in section 5.4 of the Bidder’s Statement and section 4.2 of this Target’s Statement), Desertfox holds 800,000 fully paid ordinary shares in the capital of Indago and 759,505 fully paid ordinary shares in the capital of Emerald Capital Pty Ltd.

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5. Your choices as an Emerald Shareholder

The Independent Emerald Directors’ recommendations in relation to the Offer are set out in section 1.2 of

this Target’s Statement.

As an Emerald Shareholder, you can respond to the Offer in three ways.

5.1. Accept the Offer

To accept the Offer, follow the instructions in section 4 of the Annexure to the Bidder’s Statement and on the

acceptance form accompanying the Bidder’s Statement.

Before deciding how to respond to the Offer you should:

(a) read the Bidder’s Statement (including the Supplementary Bidder’s Statement), the Target’s Statement,

and the Notice Freeing Offer From Defeating Conditions in full;

(b) consider the information given in relation to the Offer in the Bidder’s Statement (including the

Supplementary Bidder’s Statement), the Target’s Statement, and the Notice Freeing Offer From Defeating

Conditions; and

(c) consult your broker, financial or other professional adviser if you are in any doubt as to what action to

take or how to accept the Offer.

If you have any queries about the Offer you may also call Emerald’s company secretary, Mr Graeme Smith, on

(+61 8) 9389 2111 on weekdays between 9.00am and 5.00pm (WST).

The Offer may only be accepted for 30% of you Emerald Shares.

How you accept the Offer depends on whether your Emerald Shares are in an Issuer Sponsored Holding or

CHESS holding.

(a) If you hold your Emerald Shares in an Issuer Sponsored Holding (such holdings will be evidenced by an ‘I’

appearing next to your holder number on the acceptance form enclosed with the Bidder’s Statement), to

accept the Offer you must complete and sign the acceptance form enclosed with the Bidder’s Statement

and return it in accordance with the instructions contained in the acceptance form before the Offer closes.

(b) If you hold your Emerald Shares in a CHESS holding (such holdings will be evidenced by an ‘X’ appearing

next to your holder on the acceptance form enclosed with the Bidder’s Statement), you may accept the

Offer be either:

i. completing and signing the acceptance form enclosed with the Bidder’s Statement and returning it in

accordance with the instructions contained in the acceptance form; or

ii. calling your broker and instructing your broker to accept the Offer on your behalf,

before the Offer closes.

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(c) If you are a Participant, acceptance of the Offer must be initiated in accordance with rule 14.14 of the ASX

Settlement Operating Rules before the Offer closes.

Confederate has stated that the Offer remains open until 5.00pm (WST), 30 November 2013. Confederate may

choose to extend the Offer Period.

5.2. Sell your Emerald Shares on market

During the Offer Period, you can still sell your Emerald Shares on market for cash, provided you have not

already accepted the Offer for those Emerald Shares. The price you will receive will depend on the prevailing

market price of the Emerald Shares at the time of sale. You should be aware that the market price of Emerald

Shares may rise or fall during the Offer Period.

The latest price for Emerald Shares can be obtained from the ASX website at www.asx.com.au.

If you sell your Emerald Shares on market, you:

(a) will lose the ability to accept the Offer and any higher offer for your Emerald Shares (which may or may

not eventuate);

(b) will lose the ability to receive future returns from Emerald in respect of those Emerald Shares sold;

(c) may be liable for capital gains tax on the sale (refer to section 6 of this Target’s Statement for further

details); and

(d) may incur a brokerage charge.

5.3. Reject the Offer and do not sell your Emerald Shares on market

If you wish to reject the Offer and do not wish to sell your Emerald Shares on market, you should do nothing.

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6. Tax considerations

6.1. Introduction

The following is a general description of the Australian income and capital gains tax consequences to Emerald

Shareholders on the acceptance of the Offer. The comments set out below are relevant only to those Emerald

Shareholders who hold their Shares as capital assets for the purpose of investment.

Emerald Shareholders who are not resident in Australia for tax purposes should take into account the tax

consequences under the laws of their country of residence, as well as under Australian law, of acceptance of

the Offer. The following summary is intended only for Australian resident Emerald Shareholders.

The following description is based upon the Australian law and administrative practice in effect at the date of

this Target’s Statement, but it is general in nature and is not intended to be an authoritative or complete

statement of the laws applicable to the particular circumstances of every Emerald Shareholder.

Emerald Shareholders should seek independent professional advice in relation to their own particular

circumstances.

6.2. Australian resident shareholders

Acceptance of the Offer will involve the disposal by Emerald Shareholders of their Emerald Shares by way of transfer to Confederate. This change in the ownership of the Emerald Shares will constitute a capital gains tax event for Australian capital gains tax purposes. Emerald Shareholders who are Australian residents may make a capital gain or capital loss on the transfer of Emerald Shares acquired on or after 20 September 1985, depending on whether their capital proceeds from the disposal of the Emerald Shares are more than the cost base (or in some cases indexed cost base) of those Emerald Shares, or whether the capital proceeds are less than their reduced cost base of those Emerald Shares. The capital proceeds of the capital gains tax event will be the consideration price received by the Emerald Shareholder in respect of the disposal of the Emerald Shares. The cost base of the Emerald Shares generally includes their cost of acquisition and any incidental costs of acquisition and disposal that are not deductible to the shareholder. If the Emerald Shares were acquired at or before 11.45am on 21 September 1999 and held for at least 12

months before their disposal, an Emerald Shareholder may adjust the cost base of the Emerald Shares to

include indexation by reference to changes in the consumer price index from the calendar quarter in which the

Emerald Shares were acquired until the quarter ended 30 September 1999. These indexation adjustments are

taken into account only for the purposes of calculating a capital gain; they are ignored when calculating the

amount of any capital loss.

Individuals, complying superannuation entities or trustees that have held Emerald Shares for at least 12

months but do not index the cost base of the Emerald Shares should be entitled to discount the amount of the

capital gain (after application of capital losses) from the disposal of Emerald Shares by 50% in the case of

individuals and trusts or by 33% for complying superannuation entities.

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Capital gains and capital losses of a taxpayer in a year of income are aggregated to determine whether there is

a net capital gain. Any net capital gain is included in assessable income and is subject to income tax. Capital

losses may not be deducted against other income for income tax purposes, but may be carried forward to

offset against future capital gains.

6.3. Non resident shareholders

Emerald Shareholders who are not resident in Australia for income tax purposes are generally not subject to

Australian capital gains tax on the disposal of Emerald Shares if they and their associates have not held 10% or

more of the issued Emerald Shares throughout a twelve month period in the two years preceding the disposal

of their Emerald Shares. This is on the assumption that Emerald will be deemed to have over 50% of its

underlying value represented by Australian real property (land and rights relating to land) – which would

generally be the case for Australian mining companies.

6.4. Goods and services tax

Holders of Emerald Shares should not be liable to GST in respect of a disposal of those Emerald Shares.

6.5. Stamp duty

Holders of Emerald Shares should not be liable to stamp duty in respect of a disposal of those Emerald

Shares.

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7. Directors’ interests

7.1. Directors’ interests in Emerald Shares

As at the date of this Target’s Statement, the Directors of Emerald have direct and indirect relevant interests in

the following securities in Emerald:

Director Emerald Shares Emerald Options

Jeremy Shervington 8,311,915 NIL

Ross Williams NIL NIL

Tim Kestell*

94,300,000 NIL

Peter Pynes* 94,300,000 NIL

* Messrs Kestell and Pynes’ relevant interests in Emerald Shares are held via entities controlled by them, namely, Desertfox and P & L

respectively, and pursuant to Emerald Shares the subject of contracts arising upon acceptances of the Offer.

* Both Desertfox and P & L are associates of Confederate, and Confederate and its associates have a relevant interest in 233,365,101

Emerald Shares.

7.2. Directors’ intentions in relation to their Emerald Shareholdings and the Offer

As at the date of this Target’s Statement, the Directors’ intentions in relation to the Offer for the Emerald

Shares held or controlled by them are as follows:

Jeremy Shervington:

Mr Shervington does not intend to accept the Offer in relation to the Emerald Shares he controls.

Ross Williams:

Mr Williams does not hold or control any Emerald Shares and therefore Offer is not made to him.

Tim Kestell:

Mr Kestell’s interest in Emerald Shares (other than those Emerald Shares which have been accepted into the

Offer at the date of this Target’s Statement) is held via Desertfox which is an associate of Confederate, and as

such, will not be accepted into the Offer.

Peter Pynes:

Mr Pynes’ interest in Emerald Shares (other than those Emerald Shares which have been accepted into the

Offer at the date of this Target’s Statement) is held via P & L which is an associate of Confederate, and as such,

will not be accepted into the Offer.

7.3. Directors’ recent dealings in Emerald Shares

Except as disclosed below, no Director has acquired or disposed of a relevant interest in any Emerald Shares in

the four month period immediately preceding the date of this Target’s Statement:

Tim Kestell (Desertfox):

Date Emerald Shares Total Consideration Consideration per Emerald Share

%

18/9/2013 66,372,627 $696,912.58 1.05 cents 7.03%

1/10/2013 7,140,689 $99,255.58 1.39 cents 0.76%

2/10/2013 6,444,949 $90,229.29 1.40 cents 0.68%

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3/10/2013 13,541,735 $189,584.29 1.40 cents 1.44%

8/10/2013 800,000 $10,400.00 1.30 cents 0.08%

TOTAL 94,300,000 $1,086,381.74 - 9.99%

Peter Pynes (P & L):

Date Emerald Shares Total Consideration Consideration per Emerald Share

%

18/9/2013 66,372,627 $696,912.58 1.05 cents 7.03%

1/10/2013 7,140,690 $99,255.58 1.39 cents 0.76%

2/10/2013 6,444,949 $90,229.29 1.40 cents 0.68%

3/10/2013 13,541,734 $189,584.28 1.40 cents 1.44%

8/10/2013 800,000 $10,400.00 1.30 cents 0.08%

TOTAL 94,300,000 $1,086,381.74 - 9.99%

Confederate:

According to Confederate’s most recent disclosure to ASX in relation to its interest in Emerald, valid

acceptances under the Offer have been received in respect of 44,765,101 Emerald Shares, comprising 4.83 %

of the total number of Emerald Shares on issue.

7.4. Directors’ interests in Confederate securities

At the date of this Target’s Statement, both Tim Kestell and Peter Pynes have a relevant interest in 1

Confederate share (being 50% of the issued shares of Confederate) via their respective controlled entities,

Desertfox and P & L.

7.5. Directors’ recent dealings in Confederate securities

Both Tim Kestell and Peter Pynes were, upon incorporation of Confederate on 27 September 2013, issued 1

Confederate share (being 50% of the issued shares of Confederate each) via their respective controlled

entities, Desertfox and P & L. As noted in section 4, Confederate was incorporated as a special purpose vehicle

for the purpose of making the Offer.

7.6. Benefits and agreements

Other than as set out in this section, as a result of the Offer, no person has been or will be given a benefit

(other than a benefit which can be given without Shareholder approval under the Corporations Act) in

connection with the retirement of that person, or someone else, from the Board of Directors of Emerald or a

related body corporate of Emerald.

There are no agreements made between a Director and any other person in connection with, or conditional

upon, the outcome of the Offer, other than in the Director’s capacity as an Emerald Shareholder.

No Director has an interest in any contract entered into by Emerald.For

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8. Additional information

8.1. Waiver of Defeating Conditions

The Offer was subject to a number of Defeating Conditions set out in section 6.1 of the Annexure to the

Bidder’s Statement. Under the terms of the Offer and the Corporations Act, any or all of those Defeating

Conditions were able to be waived by Confederate.

Confederate, pursuant to the Notice Freeing Takeover Offer From Defeating Conditions, waived all of these

Defeating Conditions under the Corporations Act, thereby making the Offer unconditional.

8.2. Date for determining holders of Emerald Shares

For the purposes of section 633 of the Corporations Act, the date for determining the people to whom

information is to be sent under items 6 and 12 of subsection 633(1) is the Register Date.

8.3. Consents

Jeremy Shervington has given and has not before the date of this Target’s Statement withdrawn his consent to

be named in this Target’s Statement as Emerald’s legal adviser in the form and context in which he is named.

Security Transfer Registrars Pty Ltd has given and has not before the date of this Target’s Statement withdrawn

his consent to be named in this Target’s Statement as Emerald’s share registry in the form and context in

which it is named.

BDO Corporate Finance (WA) Pty Ltd has given and has not before the date of this Target’s Statement

withdrawn his consent to be named in this Target’s Statement as the Independent Expert in the form and

context in which it is named.

None of Jeremy Shervington (except in his capacity as a Director), Security Transfer Registrars Pty Ltd or BDO

have:

(a) authorised or caused the issue of the Target’s Statement; or

(b) made, or purported to make, any statement in this Target’s Statement nor is any statement in this

Target’s Statement based on any statement by any of those parties, other than as specified in this section.

Jeremy Shervington, Security Transfer Registrars Pty Ltd and BDO, to the maximum extent permitted by law,

expressly disclaim and take no responsibility for any part of this Target’s Statement other than a reference to

its name, and a statement included in this Target’s Statement with the consent of that party as specified in this

section.

8.4. Publicly available information

This Target’s Statement contains statements which are made in, or based on statements made in, documents

lodged with ASIC or given to ASX by Confederate.

As permitted by ASIC class order 13/521, the consent of Confederate is not required for the inclusion of those

statements in this Target’s Statement. Any Emerald Shareholder may obtain a copy of these documents, free

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of charge, by contacting Emerald’s company secretary, Mr Graeme Smith, on (+61 8) 9389 2111 on weekdays

between 9.00am and 5.00pm (WST).

As permitted by ASIC class order 13/523, this Target’s Statement may include or be accompanied by certain

statements:

(a) fairly representing a statement by an official person; or

(b) from a public official document or published book, journal or comparable publication,

and the consent of the persons to whom those statements are attributed is not required to be included in this

Target’s Statement.

8.5. Social security and superannuation implications of the Offer

Acceptance of the Offer may have implications under your superannuation arrangements or on your social

security entitlements. If you are in doubt, you should seek specialist advice.

8.6. No material litigation

The Directors are not aware of any current material litigation involving Emerald.

8.7. No other material matter

This Target’s Statement is required to include all information that Emerald Shareholders and their professional

advisers would reasonably require to make an informed assessment about whether to accept the Offer, but:

(a) only to the extent to which it is reasonable for Emerald Shareholders and their professional advisers to

expect to find this information in the Target’s Statement; and

(b) only if the information is known to any Director.

The Directors of Emerald are of the opinion that the information that Emerald Shareholders and their

professional advisers would reasonably require to make an informed assessment of whether to accept the

Offer is:

(a) the Bidder’s Statement (including the Supplementary Bidder’s Statement) (to the extent that the

information that is not consistent with or superseded by information in this Target’s Statement);

(b) Emerald’s annual reports and releases to ASX, and documents lodged with ASIC before the date of this

Target’s Statement; and

(c) this Target’s Statement.

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9. Approval of Target’s Statement

This Target’s Statement has been approved by a resolution passed by the Directors on 15 November 2013. All

the Directors, other than Mr Tim Kestell and Peter Pynes (who, for the reasons outlined in this Target’s

Statement, abstained and did not participate in deliberations), voted in favour of that resolution.

Dated 15 November 2013

Jeremy Shervington

Chairman

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10. Definitions and interpretation

10.1. Definitions

In this Target’s Statement:

Term Definition

ASIC means the Australian Securities and Investments Commission.

ASX Settlement means ASX Settlement Pty Limited (ACN 008 504 532), the body which administers CHESS in Australia.

ASX Settlement Operating Rules means the settlement rules of ASX Settlement.

ASX means ASX Limited (ACN 008 624 691) or the securities exchange operated by it (as the case requires).

BDO and Independent Expert means BDO Corporate Finance (WA) Pty Ltd (ACN 124 031 045)

Bidder’s Statement means the bidder’s statement dated 11 October 2013 served on Emerald about the off-market offer under section 633 of the Corporations Act and which contains the Offer, together with the Supplementary Bidder’s Statement.

Board or Emerald Board means the board of Directors of Emerald.

Broker means a person who is a share broker and participant in CHESS.

Business Day means a day on which banks are open for business in Perth, excluding a

Saturday, Sunday or public holiday.

CGT means capital gains tax.

CHESS means the Clearing House Electronic Subregister System, which provides for electronic share transfer in Australia.

CHESS Holding means a holding of Emerald Shares on the CHESS subregister of Emerald.

Confederate means Confederate Capital Pty Ltd (ACN 166 032 891).

Constitution means the constitution of Emerald.

Corporations Act means the Corporations Act 2001 (Cth).

Defeating Conditions means the conditions to the Offer set out in section 6.1 of the Annexure to the Bidder’s Statement, which were waived on 5 November 2013 pursuant to the Notice Freeing Offer From Defeating Conditions.

Desertfox means Desertfox Pty Ltd (ACN 091 447 540).

Directors and Emerald Directors means the directors of Emerald.

Emerald means Emerald Oil & Gas NL (ACN 009 795 046).

Emerald Independent Directors

and Independent Directors

means those Directors other than Tim Kestell and Peter Pynes.

Emerald Shares means fully paid ordinary shares in the capital of Emerald and Emerald

Shareholder has a corresponding meaning.

EOX means Emerald Oil Inc. (NYSE:EOX).

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Expert’s Report means the independent expert’s report prepared by BDO in relation to the Offer, contained in Annexure 1.

Indago means Indago Resources Pty Ltd (ACN 009 150 618).

Issuer Sponsored Holding means a holding of Shares on Emerald’s issuer sponsored sub-register.

Lenders has the meaning given to it in section 2.9 of this Target’s Statement.

Listing Rules means the Official Listing Rules of ASX, as amended and waived by ASX from time to time.

Loan Agreement has the meaning given to that term in section 2.9 of this Target’s Statement.

Material Adverse Change means the events contemplated by section 6.1(c) of the Annexure to the Bidder’s Statement.

Notice Freeing Offer From Defeating Conditions

the notice given to Emerald by Confederate on 5 November 2013 whereby Confederate declared that the Offer, and each contract formed pursuant to the acceptances of the Offer, are free from all Defeating Conditions.

Notice of Status of Conditions means Confederate’s notice disclosing the status of the Defeating Conditions of the Offer which is required to be given by section 630(3) Corporations Act.

OBG means Old Blood and Guts Pty Ltd (ACN 122 608 360).

Offer means the offer by Confederate for Emerald Shares under the Bidder’s Statement.

Offer Period means the period during which the Offer will remain open for acceptance in accordance with section 3 of the Annexure to the Bidder’s Statement.

Offer Price means the consideration payable by Confederate under the Offer, being

1.4 cents per Emerald Share.

OGH and Ochre Group Holdings

Limited

means Ochre Group Holdings Limited (ACN 008 877 745).

Options or Emerald Options means options to subscribe for Emerald Shares.

P&L means P & L Capital Investments Pty Ltd (ACN 127 446 904).

Participant means an entity admitted to participate in the Clearing House Electronic Sub-register system under Rule 4.3.1, 4.4.1 and 4.5.1 of the ASX Settlement Operating Rules.

Prescribed Occurrence means the occurrences contemplated by section 6.1(f) of the Annexure

to the Bidder’s Statement.

QMP means quoted market price.

Quicksilver means Quicksilver Asset Pty Ltd (ACN 106 986 261).

Register Date means the date set by Confederate under section 633(2) of the Corporations Act, being 14 October 2013.

Securityholder Reference Number has the same meaning as in the ASX Settlement Operating Rules.

Small Parcel has the meaning contemplated by section 2.14 of this Target’s Statement.

Supplementary Bidder’s Statement

means the supplementary bidder’s statement made by Confederate under section 643 of the Corporations Act and dated 29 October 2013.

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Target’s Statement means this document, being the Emerald target’s statement.

Voyager means Voyager Oil and Gas Inc.

WST means Western Standard Time as observed in Perth, Western Australia.

10.2. Interpretation

In this Target’s Statement, unless the context otherwise requires: (a) headings are for convenience and do not affect the interpretation;

(b) words or phrases defined in the Corporations Act have the same meaning in this Target’s Statement;

(c) a reference to a section is a reference to a section of this Target’s Statement;

(d) a singular word includes the plural and vice versa;

(e) if a word or phrase is defined, its other grammatical forms have a corresponding meaning;

(f) a reference to a person includes a corporation, trust, partnership, unincorporated body, government and

local authority or agency, or other entity whether or not it comprises a separate legal entity;

(g) a reference to legislation or to a provision of legislation (including subordinate legislation) is to that legislation as amended, re-enacted or replaced, and includes any subordinate legislation issued under it; and

(h) a reference to ‘$’ or ‘dollar’ is to Australian currency.

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ANNEXURE 1 – INDEPENDENT EXPERT’S REPORT

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EMERALD OIL AND GAS NL Independent Expert’s Report

11 November 2013

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BDO CORPORATE FINANCE (WA) PTY LTD

Financial Services Guide

11 November 2013

BDO Corporate Finance (WA) Pty Ltd ABN 27 124 031 045 (“we” or “us” or “ours” as appropriate) has been engaged by Emerald Oil & Gas NL (“Emerald”) to provide an independent expert‟s report on the proposed acquisition of 30% of the issued shares of Emerald by Confederate Capital Pty Ltd (“Confederate”) by way of a proportional takeover offer to Emerald shareholders. You will be provided with a copy of our Report as a retail client because you are a shareholder of Emerald. Financial Services Guide In the above circumstances we are required to issue to you, as a retail client, a Financial Services Guide (“FSG”). This FSG is designed to help retail clients make a decision as to their use of the general financial product advice and to ensure that we comply with our obligations as financial services licensees. This FSG includes information about:

Who we are and how we can be contacted;

The services we are authorised to provide under our Australian Financial Services Licence, Licence No. 316158;

Remuneration that we and/or our staff and any associates receive in connection with the general financial product advice;

Any relevant associations or relationships we have; and

Our internal and external complaints handling procedures and how you may access them. Information about us BDO Corporate Finance (WA) Pty Ltd is a member firm of the BDO network in Australia, a national association of separate entities (each of which has appointed BDO (Australia) Limited ACN 050 110 275 to represent it in BDO International). The financial product advice in our Report is provided by BDO Corporate Finance (WA) Pty Ltd and not by BDO or its related entities. BDO and its related entities provide services primarily in the areas of audit, tax, consulting and financial advisory services. We do not have any formal associations or relationships with any entities that are issuers of financial products. However, you should note that we and BDO (and its related entities) might from time to time provide professional services to financial product issuers in the ordinary course of business. Financial services we are licensed to provide We hold an Australian Financial Services Licence that authorises us to provide general financial product advice for securities to retail and wholesale clients. When we provide the authorised financial services we are engaged to provide expert reports in connection with the financial product of another person. Our Reports indicate who has engaged us and the nature of the report we have been engaged to provide. When we provide the authorised services we are not acting for you. General Financial Product Advice We only provide general financial product advice, not personal financial product advice. Our Report does not take into account your personal objectives, financial situation or needs. You should consider the appropriateness of this general advice having regard to your own objectives, financial situation and needs before you act on the advice. F

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Financial Services Guide Page 2

Fees, commissions and other benefits that we may receive We charge fees for providing reports, including this report. These fees are negotiated and agreed with the person who engages us to provide the report. Fees are agreed on an hourly basis or as a fixed amount depending on the terms of the agreement. The fee payable to BDO Corporate Finance (WA) Pty Ltd for this engagement is approximately $18,000. Other Services BDO Tax (WA) Pty Ltd, an entity related to BDO Corporate Finance (WA) Pty Ltd, provides compliance taxation services to Emerald. Over the two years prior to the date of this report BDO Tax (WA) Pty Ltd has charged Emerald a total of $50,926 (excluding GST) for these services. BDO Corporate Finance (WA) Pty Ltd also charged Emerald $45,000 (excluding GST) for preparing an independent expert‟s report relating to the Ochre Group Holdings Limited‟s scheme of arrangement, which was withdrawn on 8 October 2013. Remuneration or other benefits received by our employees All our employees receive a salary. Our employees are eligible for bonuses based on overall productivity but not directly in connection with any engagement for the provision of a report. We have received a fee from Emerald for our professional services in providing this report. That fee is not linked in any way with our opinion as expressed in this report. Referrals We do not pay commissions or provide any other benefits to any person for referring customers to us in connection with the reports that we are licensed to provide. Complaints resolution Internal complaints resolution process As the holder of an Australian Financial Services Licence, we are required to have a system for handling complaints from persons to whom we provide financial product advice. All complaints must be in writing addressed to The Complaints Officer, BDO Corporate Finance (WA) Pty Ltd, PO Box 700 West Perth WA 6872. When we receive a written complaint we will record the complaint, acknowledge receipt of the complaint within 15 days and investigate the issues raised. As soon as practical, and not more than 45 days after receiving the written complaint, we will advise the complainant in writing of our determination. Referral to External Dispute Resolution Offer A complainant not satisfied with the outcome of the above process, or our determination, has the right to refer the matter to the Financial Ombudsman Service (“FOS”). FOS is an independent organisation that has been established to provide free advice and assistance to consumers to help in resolving complaints relating to the financial service industry. FOS will be able to advise you as to whether or not they can be of assistance in this matter. Our FOS Membership Number is 12561. Further details about FOS are available at the FOS website www.fos.org.au or by contacting them directly via the details set out below. Financial Ombudsman Service GPO Box 3 Melbourne VIC 3001 Toll free: 1300 78 08 08 Facsimile: (03) 9613 6399 Email: info@fos.org.au Contact details You may contact us using the details set out on page 1 of the accompanying report.

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TABLE OF CONTENTS

1. Introduction 1

2. Summary and Opinion 1

3. Scope of the Report 4

4. Outline of the Offer 5

5. Profile of Emerald 7

6. Profile of Confederate 13

7. Economic analysis 13

8. Industry analysis 14

9. Valuation approach adopted 18

10. Valuation of Emerald 19

11. Valuation of the Offer consideration 31

12. Is the Offer fair? 32

13. Is the Offer reasonable? 32

14. Conclusion 36

15. Sources of information 36

16. Independence 36

17. Qualifications 37

18. Disclaimers and consents 37

Appendix 1 – Glossary

Appendix 2 – Valuation Methodologies

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BDO Corporate Finance (WA) Pty Ltd ABN 27 124 031 045 AFS Licence No 316158 is a member of a national association of independent entities which are all members of BDO (Australia) Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Corporate Finance (WA) Pty Ltd and BDO (Australia) Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation (other than for the acts or omissions of financial services licensees) in each State or Territory other than Tasmania.

11 November 2013

The Directors

Emerald Oil & Gas NL

20 Kings Park Road

WEST PERTH WA 6005

Dear Sirs

INDEPENDENT EXPERT’S REPORT

1. Introduction

On 1 October 2013, Emerald Oil & Gas NL (“Emerald” or “the Company”) advised that the Company

received a proposal from Confederate Capital Pty Ltd (“Confederate”) for an all cash proportional off-

market takeover offer to acquire 30% of the fully paid ordinary shares in the capital of Emerald. On 14

October 2013, Emerald announced the receipt of a bidder‟s statement from Confederate proposing to

offer Emerald shareholders (“Shareholders”) 1.4 cents per share for 30% of the shares held by each

Shareholder (“Offer”). A supplementary bidder‟s statement was released on 29 October 2013. The original

bidder‟s statement and the supplementary bidder‟s statement, released on 14 October 2013 and 29

October 2013 respectively, are collectively referred to as “Bidder’s Statement”.

2. Summary and Opinion

2.1 Purpose of the report

The directors of Emerald have requested that BDO Corporate Finance (WA) Pty Ltd (“BDO”) prepare an

independent expert‟s report (“our Report”) to express an opinion as to whether or not the Offer is fair

and reasonable for Shareholders.

Our Report is prepared pursuant to section 640 of the Corporations Act 2001 Cth (“the Act”) and is to be

included in a target‟s statement to be sent to all Shareholders (“Target’s Statement”) in order to assist

them in their decision whether to accept the Offer.

2.2 Approach

Our Report has been prepared having regard to Australian Securities and Investments Commission (“ASIC”)

Regulatory Guide 111 (“RG 111”), „Content of Expert‟s Reports‟ and Regulatory Guide 112 (“RG 112”)

„Independence of Experts‟.

In arriving at our opinion, we have assessed the terms of the Offer as outlined in the body of this report.

We have considered:

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how the value of an Emerald share compares to the value of the consideration being offered by

Confederate;

the likelihood of a superior alternative offer being available to Emerald;

Other factors which we consider to be relevant to the Shareholders in their assessment of the Offer;

and

the position of Shareholders should the Offer not be successful.

2.3 Opinion

We have considered the terms of the Offer as outlined in the body of this report and have concluded that,

in the absence of a superior offer, the Offer is not fair and not reasonable for Shareholders.

2.4 Fairness

In section 12, we determined that Offer consideration compares to the value of an Emerald share as

detailed hereunder.

Low Mid High

Ref $ $ $

Value of an Emerald share 10.7 0.0152 0.0162 0.0171

Value of Offer consideration 11 0.0140 0.0140 0.0140

Source: BDO analysis

The above valuation ranges are graphically presented below:

The above pricing indicates that, in the absence of any other relevant information, and a superior offer,

the Offer is not fair for Shareholders.

2.5 Reasonableness

We have considered the analysis in section 13 of this report, in terms of both

advantages and disadvantages of the Offer; and

alternatives, including the position of Shareholders if the Offer does not proceed.

In our opinion, the position of Shareholders if the Offer is successful is less advantageous than the position

if the Offer is not successful. Accordingly, in the absence of any other relevant information and/or a

superior proposal, we believe that the Offer is not reasonable for Shareholders.

0.000 0.005 0.010 0.015 0.020

Value of Offer consideration

Value of a share in Emerald

Value ($)

Valuation Summary

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The respective advantages and disadvantages considered are summarised below:

ADVANTAGES AND DISADVANTAGES

Section Advantages Section Disadvantages

13.1.1 Shareholders can dispose part of their

investment with no brokerage costs or

other associated selling costs for their

shares

13.2.1 The Offer is not fair

13.1.2 Shareholders can receive a higher price

than what they can sell in the market

13.2.2 Shareholders will have their shareholding

diluted to 56.01% if all Shareholders accept the

Offer

13.1.3 Shareholders will be able to obtain cash

for a partial exit of their investment and

still retain the opportunity to participate

in any potential upside of Emerald in

respect of their remaining shareholding

13.2.3 Reduction in liquidity as an increased number

of shares will be held by Confederate, a single

shareholder

13.2.4 Decreases the likelihood of a full takeover

offer

13.2.5 Shareholders may be giving up the opportunity

to realise the fair value of their shares through

a better potential offer

Other key matters we have considered include:

Section Description

13.3.1 Alternative Proposals

13.3.2 Practical level of control

13.3.3 Consequences of not accepting the Offer

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3. Scope of the Report

3.1 Purpose of the Report

Confederate has prepared a Bidder‟s Statement in accordance with section 636 of the Act. Under section

633 item 10 of the Act, Emerald is required to prepare a Target‟s Statement in response to the Bidder‟s

Statement.

Section 640 of the Act requires the Target‟s Statement to include an independent expert‟s report to

shareholders if:

the bidder‟s voting power in the target is 30% or more; or

the bidder and the target have a common director or directors.

Tim Kestell and Peter Pynes are common directors of Confederate and Emerald. Therefore, an

independent expert‟s report is required for inclusion in the Target Statement. The directors of Emerald

have engaged BDO to satisfy this requirement.

3.2 Regulatory guidance

Neither the Listing Rules nor the Corporations Act defines the meaning of “fair and reasonable”. In

determining whether the Offer is fair and reasonable, we have had regard to the views expressed by ASIC

in RG 111. This regulatory guide provides guidance as to what matters an independent expert should

consider to assist security holders to make informed decisions about transactions.

This regulatory guide suggests that where the transaction is a control transaction, the expert should focus

on the substance of the control transaction rather than the legal mechanism to affect it. RG 111 suggests

that where a transaction is a control transaction, it should be analysed on a basis consistent with a

takeover bid.

In our opinion, the Offer is a control transaction as defined by RG 111 and we have therefore assessed the

Offer as a control transaction to consider whether, in our opinion, it is fair and reasonable to

Shareholders.

3.3 Adopted basis of evaluation

RG 111 states that a transaction is fair if the value of the offer price or consideration is greater than the

value of the securities subject of the offer. This comparison should be made assuming a knowledgeable

and willing, but not anxious, buyer and a knowledgeable and willing, but not anxious, seller acting at

arm‟s length. When considering the value of the securities subject of the offer in a control transaction

the expert should consider this value inclusive of a control premium. Further to this, RG 111 states that a

transaction is reasonable if it is fair. It might also be reasonable if despite being „not fair‟ the expert

believes that there are sufficient reasons for security holders to accept the offer in the absence of any

higher bid.

Having regard to the above, BDO has completed this comparison in two parts:

a comparison between value of an Emerald share on a control basis and the value of the cash

consideration being offered per share (fairness – see section 12 “Is the Offer Fair?”); and

an investigation into other significant factors to which Shareholders might give consideration, prior to

accepting the Offer, after reference to the value derived above (reasonableness – see section 13 “Is

the Offer Reasonable?”).

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This assignment is a Valuation Engagement as defined by Accounting Professional & Ethical Standards

Board professional standard APES 225 „Valuation Services‟ (“APES 225”).

A Valuation Engagement is defined by APES 225 as follows:

“an Engagement or Assignment to perform a Valuation and provide a Valuation Report where the Valuer

is free to employ the Valuation Approaches, Valuation Methods, and Valuation Procedures that a

reasonable and informed third party would perform taking into consideration all the specific facts and

circumstances of the Engagement or Assignment available to the Valuer at that time.”

This Valuation Engagement has been undertaken in accordance with the requirements set out in APES 225.

4. Outline of the Offer

On 14 October 2013, Emerald announced the receipt of a Bidder‟s Statement from Confederate proposing

to offer Emerald shareholders 1.4 cents per share for 30% of the shares held by each Shareholder. The

Offer does not extend to any Emerald options held.

Confederate is not currently a registered holder of Emerald shares. However, P & L Capital Investments

Pty Ltd (“P&L Capital”) and Desertfox Pty Ltd (“Desertfox”) are each currently registered holders of

94,300,000 Emerald shares (being a 9.99% interest in the Emerald shares on issue). As a result,

Confederate and its associates held a total of 188,600,000 Emerald shares (being a 19.99% interest in the

Emerald shares on issue) prior to the Offer.

Conditions of the Offer include:

a majority of the Emerald board being made up of Confederate nominees;

Emerald not proceeding with an alternative proposal from a third party that would result in the

acquisition of a controlling interest in Emerald;

no material adverse change affecting Emerald; and

no change to the capital structure of Emerald and its subsidiaries; and

Emerald does not make or declare, or announce an intention to make or declare any distribution

(including an in specie distribution).

Further disclosure of the terms of the Offer is included in the Bidder‟s Statement.

The consideration for the Offer will be satisfied wholly in cash. Based on the number of Emerald shares on

issue as at the date of our Report, the maximum amount of cash that Confederate will be required to pay

under the Offer if acceptances are received would be approximately $3,171,215.48. Confederate will fund

the cash payable under the Offer using cash provided to it by the following entities:

Desertfox – an entity controlled by Tim Kestell;

OBG – an entity controlled by Tim Kestell;

P&L Capital – an entity controlled by Peter Pynes and his wife, Lara Pynes; and

Quicksilver – an entity controlled by Lara Pynes.

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The funding is provided by way of a loan agreement dated 2 October 2013 where Desertfox and OBG will

together lend up to 50% of the required funds, and, P&L Capital and Quicksilver will together lend up to

50% of the required funds. Broad terms of the loan are:

the funding arrangement is non-interest bearing;

the funds are to be used for the sole purpose of making payment of the consideration payable

under the Offer;

the funds are available at any time at the request of Confederate and are not subject to any

conditions precedent; and

the funding remains available at any time during which the consideration is payable under the

Offer.

We note that we have not assessed whether these entities have sufficient cash to provide the funding

under the above loan agreement.

If all Shareholders, other than Desertfox and P&L Capital, accept the Offer for 30% of their shareholding,

the Offer will result in the change in the shareholding structure as follows:

Pre-Offer

shareholding

Percentage

of issued

shares (%)

Transfer of

shares under

the Offer

Post-Offer

shareholding

Percentage

of issued

shares (%)

Range of Shares Held

Desertfox 94,300,000 9.993% - 94,300,000 9.993%

P&L Capital 94,300,000 9.993% - 94,300,000 9.993%

Confederate - - 226,515,391 226,515,391 24.004%

Shareholders 755,051,304 80.014% (226,515,391) 528,535,913 56.010%

TOTAL 943,651,304 100.00% - 943,651,304 100.00%

Source: Bidder‟s Statement and BDO analysis

If the Offer is successful, Confederate and its associates may increase its shareholding from 19.99% prior

to the Offer to 43.99%.

Subsequent to the release of the Bidder‟s Statement, an announcement was made to the market on 5

November 2013 giving notice of the increase in shareholding interest and voting power of Confederate and

its associates from 19.99% to 24.73% as at 4 November 2013. A separate notice was also released on 5

November 2013 freeing the Offer from all of its defeating conditions set out in section 6.1 of the Annexure

of the Bidder‟s Statement.

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5. Profile of Emerald

5.1 History

Emerald Oil & Gas NL, obtained official admittance onto the ASX on 22 July 1994 under the name Maple

Oil NL. The Company, which has also been formerly known as Matrix Oil NL and Eastern Copper Mines NL

was incorporated on 15 September 1969. Emerald is a petroleum exploration and production company with

assets based in the USA, but with its head office in Western Australia.

On 26 February 2013, Ochre Group Holdings Limited (“Ochre”) acquired 120 million shares in Emerald,

representing a 12.717% stake in the Company. Specifically, Ochre Petroleum Pty Limited, a subsidiary of

Ochre, offered a consideration of $1.5 million (1.25 cents per share) to purchase the Emerald Shares from

New Frontier Energy. A further 35.65 million shares were acquired for a consideration of $0.463 million

using funds that were raised via a rights issue. As at the date of our Report, Ochre holds 16.49% of the

shares issued by Emerald.

On 29 July 2013, Emerald announced that it had executed a sale agreement over all of its Canning Basin

interests with Key Petroleum Limited (“Key Petroleum”). The consideration offered by Key Petroleum to

Emerald consists of the following:

i) $50,000 cash; and

ii) The issue of 4 million ordinary fully paid shares in Key Petroleum to Emerald (or its Nominee)

at an issue price based on the 5 day VWAP of Key Petroleum shares over the 5 days preceding

the completion date, on or around 15 August 2013.

On 18 September 2013 Confederate, via on-market transactions, purchased approximately 133 million

Emerald Shares. In subsequent on-market transactions, Confederate increased its interest in Emerald

through P&L Capital and Desertfox, resulting in a holding of 188,600,000 Emerald shares (being a 19.99%

interest in the Emerald shares on issue) as at 8 October 2013.

The merger implementation deed entered into between Emerald and Ochre on 1 August 2013, where

Emerald shareholders would receive one Ochre share for every 2.75 Emerald shares held, was terminated

by mutual agreement on 8 October 2013.

Following the resignation of McAndrew Rudisill, Dino Di Costa and Davide Bosio announced on 3 October

2013 and Mike Krzus on 11 October 2013, Emerald‟s board of directors now comprises:

Jeremy Shervington (Non-executive Chairman)

Tim Kestell (Non-Executive Director)

Peter Pynes (Non-Executive Director)

Ross Williams (Non-Executive Director)

Tim Kestell and Peter Pynes are also directors of Confederate. Confederate is owned equally by P&L

Capital and Desertfox which are entities related to Peter Paynes and Tim Kestell respectively.

On 14 October 2013, Emerald announced the receipt of a Bidder‟s Statement from Confederate in

conjunction with Confederate‟s off-market takeover offer announced on 1 October 2013. A supplementary

Bidder‟s statement was released on 29 October 2013. As at 4 November 2013, Confederate and its

associates further increased its shareholding in Emerald shares to 233,365,101 through Offer acceptances,

to its current shareholding of 24.73%.

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5.2 Investment in Emerald Oil Inc.

On 27 July 2012, Voyager Oil & Gas Inc. (“Voyager”), a US publicly listed company, completed the

acquisition of Emerald‟s, then wholly owned subsidiary, Emerald Oil Inc. Following the transaction,

Emerald obtained a 19.9% interest in the combined entity. In addition, Emerald received $2.5 million in

cash from Emerald Oil Inc as part of a separate pre-existing inter-company arrangement. On 4 September

2012, Voyager announced that it would be conducting business moving forward under the name of Emerald

Oil Inc. Over the past year, Emerald Oil Inc has participated in various capital raising activities, including

the completion of the sale of 13.8 million shares of its common stock on 22 May 2013. The effect of the

capital raising activities has been dilutive of Emerald‟s interest in Emerald Oil Inc.

The Company‟s primary asset is its investment in Emerald Oil Inc. Emerald currently holds a 2.56% interest

(1,662,174 shares) in Emerald Oil Inc. The primary focus of Emerald Oil Inc is to acquire acreage and

developing wells in the Williston Basin of North Dakota and Montana, targeting the Bakken and Three Forks

shale oil formations. Emerald Oil Inc has approximately 66,000 net acres in the Williston Basin.

Emerald Oil Inc also has the following secondary assets:

Sand Wash Basin – Niobarra

Heath Shale Oil

Denver- Julesberg (D-J) Basin – Niobarra

Tiger Ridge

Emerald Oil Inc has signalled its intention to monetise its Sand Wash Basin Project and Heath Shale Oil

Project, as a means for providing capital injections necessary to fund the operating program in the

Williston Basin. In January 2013, Emerald Oil Inc announced that it had reached an agreement to sell

approximately 30,902 net acres in the Sand Wash Basin.

Emerald Oil Inc has a 50% interest in 4 wells that are currently producing in the Denver Julesberg Basin

which is located in Weld County, Colorado.

Emerald Oil Inc has approximately 72,800 net acres in the Tiger Ridge area, a large gas field located in

north-central Montana. It is not expected however, that there will be significant production achieved from

this area until natural gas prices improve.

On 9 September 2013, Emerald Oil Inc announced the sale of all non-operated assets for $113 million.

5.3 The Appalachian Project

Emerald, through its 75% ownership of Kentucky Energy Partners LLC (“KEP”), holds producing

Appalachian gas assets in Kentucky, USA (“the Appalachian Project”). The Appalachian Project has three

years of production history, limited to the production of sweet (low sulphur) gas, at a rate of

approximately 300 cubic feet of gas per day (“Mcfd”).

KEP has been working towards the commissioning of a sour (high sulphur) gas plant that would enable the

production of low and high sulphur gas. Over the past three years KEP has committed efforts to identifying

additional wells in anticipation of the commissioning of the new sour gas plant. It is believed, provided

additional capital expenditure requirements are met, that approximately one million cubic feet of gas per

day (“MMcfd”) could be achieved at the Appalachian Project. A more detailed analysis of the Appalachian

Project can be found in section 10.2 of our Report.

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5.4 Historical Balance Sheet

Statement of Financial Position

Audited as at Audited as at Audited as at

30-Jun-13 30-Jun-12 30-Jun-11

$ $ $

CURRENT ASSETS

Cash and cash equivalents 403,672 504,457 8,385,274

Trade and other receivables 40,242 22,073 261,025

Financial assets at fair value through profit and loss 12,485,233 - -

Assets classified as held for sale - 39,737,682 -

TOTAL CURRENT ASSETS 12,929,147 40,264,212 8,646,299

NON-CURRENT ASSETS

Investments accounted for using the equity method - - 2,744,806

Property, plant and equipment 182,037 191,563 210,248

Exploration and evaluation expenditure 389,068 339,902 17,893,489

Oil and gas assets 530,149 569,684 -

TOTAL NON-CURRENT ASSETS 1,101,254 1,101,149 20,848,543

TOTAL ASSETS 14,030,401 41,365,361 29,494,842

CURRENT LIABILITIES

Trade and other payables 64,024 172,465 1,972,862

Loans and borrowings - 363,065 -

Other creditors - 1,076,391 -

Liabilities classified as held for sale - 17,693,803 -

TOTAL CURRENT LIABILITIES 64,024 19,305,724 1,972,862

TOTAL LIABILITIES 64,024 19,305,724 1,972,862

NET ASSETS 13,966,377 22,059,637 27,521,980

EQUITY

Issued capital 46,356,181 45,627,768 42,497,549

Reserves 1,059,713 2,070,580 925,993

Accumulated losses (33,539,990) (25,803,075) (16,150,151)

TOTAL EQUITY ATTRIBUTABLE TO OWNERS OF THE PARENT 13,875,904 21,895,273 27,273,391

Non-controlling interest 90,473 164,364 248,589

TOTAL EQUITY 13,966,377 22,059,637 27,521,980

Source: Emerald‟s audited 30 June 2012 and 30 June 2013 financial statements.

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We comment on the statement of financial position as follows:

As at 30 June 2012, Emerald had classified its interest in Emerald Oil Inc and its subsidiaries (at

which point the Company had a 100 per cent interest), Emerald GRB LLC and Emerald WB LLC

(“the Disposal Group”) as assets held for sale. This is to reflect the Company‟s expectation that

the carrying value of the Disposal Group would be realised through a sale transaction rather than

through its continued operation.

As at 30 June 2011 the Company held a 45% interest in Slater Dome Gathering LLLP (“SDG”), SDG

was accounted for under the equity method. In FY2012, Emerald‟s interest in SDG was impaired by

approximately $2.1 million with the balance transferred to assets classified as held for sale.

Emerald‟s cash and cash equivalents balance decreased significantly from 30 June 2011 and 30

June 2012. This decrease is largely attributable to increased exploration and evaluation

expenditure of $20.681 million for the year to 30 June 2012 compared to $7.915 million for the

year to 30 June 2013. The cash and cash equivalent balance $0.404 million as at 30 June 2013 is

only slightly lower compared to the balance as at 30 June 2012 of $0.504 million.

The additional exploration and evaluation expenditure noted in the point above, is reflected in

the assets classified as held for sale balance as at 30 June 2012 of $39.738 million. As outlined in

section 5.2 of our Report, on 27 July 2012 Voyager completed the acquisition of Emerald‟s then

wholly owned subsidiary Emerald Oil Inc. The Company‟s interest in the combined entity, is

reflected in the financial assets at fair value through profit and loss balance of $12.485 million as

at 30 June 2013.

The exploration and evaluation expenditure balance of $0.389 million as at 30 June 2013 relates

primarily to Emerald‟s Appalachian Project. $0.102 million of the exploration and evaluation

expenditure balance as at 30 June 2013 relates to the Company‟s leases in the Canning Basin,

which as we noted in section 5.1 of our Report were recently sold to Key Petroleum.

The oil and gas assets balance of $0.530 million as at 30 June 2013 relates entirely to Emerald‟s

Appalachian Project.

Emerald‟s trade and other payables balance decreased considerably over the period from $1.973

million as at 30 June 2011 to $0.064 million as at 30 June 2013. Trade and other payables are non-

interest bearing, unsecured and are usually paid within 30 days of recognition.

Issued capital increased by $0.728 million from 30 June 2012 to 30 June 2013, primarily as a result

of the issue of shares to a US company. The shares were issued as consideration for amending

terms of a debt facility that had been provided to Emerald.

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5.5 Historical Statement of Comprehensive Income

Statement of Comprehensive Income

Audited Audited Audited year ended

30-Jun-13 year ended

30-Jun-12 year ended

30-Jun-11

$ $ $

Revenue 107,878 123,326 79,183

Cost of Sales (153,503) (141,097) (40,631)

Gross (loss) profit (45,625) (17,771) 38,552

Other income - 389,263 -

Corporate, legal and administration expenses (680,579) (602,858) (1,344,098)

Consulting and contracting expenses (286,237) (413,539) (664,167)

Fair value losses on financial assets (128,689) - -

Other expenses - (794,661) (2,285,205)

Loss from operating activities (1,141,130) (1,439,566) (4,254,918)

Finance income 44,526 93,901 76,436

Finance expense (34,460) (1,346) -

Net finance income 10,066 92,555 76,436

Loss before income tax (1,131,064) (1,347,011) (4,178,482)

Income tax benefit - - 17,968

Loss from continuing operations (1,131,064) (1,347,011) (4,160,514)

Discontinued operations

(Loss) profit from discontinued operations (6,671,291) (8,416,604) 4,643

Loss for the year (7,802,355) (9,763,615) (4,155,871)

Other comprehensive income (loss)

Foreign currency translation differences for foreign operations (207,403) 1,171,053 (183,804) Transfer on foreign exchange reserve on disposal of discontinued operations (811,915) - -

Total comprehensive loss for the year (8,821,673) (8,592,562) (4,339,675)

Source: Emerald‟s audited 30 June 2012 and 30 June 2013 financial statements.

We comment on the statement of comprehensive income as follows:

Sales revenue of $0.108 million generated during the period ended 30 June 2013 relates to gas

sales from the Appalachian Project.

During the period ended 30 June 2012, the Company received $0.374 million as settlement for

legal proceedings taken against Noxxe LLC for breaching its obligations to Emerald under various

agreements.

Other expenses of $0.795 million and $2.285 million for the periods ended 30 June 2012 and 30

June 2013 respectively relate to the impairment of exploration and evaluation expenditures and

the impairment of oil and gas assets.

The loss from discontinued operations of $8.417 million for the period ended 30 June 2012 relates

to the sale of the Disposal Group. The loss from discontinued operations of $6.671 million for the

period ended 30 June 2013 relates to the deconsolidation of Emerald Oil Inc.

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5.6 Capital Structure

The share structure of Emerald as at 14 October 2013 is outlined below:

Number

Total ordinary shares on issue 943,651,304

Top 20 shareholders 663,276,214

Top 20 shareholders - % of shares on issue 70.29%

Source: Emerald‟s share register

The range of shares held in Emerald as at 14 October 2013 is as follows:

Number of Ordinary

Shareholders Number of Ordinary

Shares Percentage of Issued

Shares (%) Range of Shares Held

1 - 1,000 296 48,862 0.01%

1,001 - 5,000 86 289,742 0.03%

5,001 - 10,000 236 1,721,564 0.18%

10,001 - 100,000 565 20,967,829 2.22%

100,001 - and over 347 920,623,307 97.56%

TOTAL 1,530 943,651,304 100.00%

Source: Emerald‟s share register

The ordinary shares held by the most significant shareholders as at 14 October 2013 are detailed below:

Number of Ordinary

Shares Held Percentage of Issued

Shares (%) Name

Ochre Petroleum Pl 155,650,000 16.49%

Desert Fox Pl 94,300,000 9.99%

P&L Capital Pl 94,300,000 9.99%

HSBC Custodee Nominees Australia Ltd 83,352,081 8.83%

Total Top 4 427,602,081 45.31%

Others 516,049,223 54.69%

Total ordinary shares on Issue 943,651,304 100.00%

Source: Emerald‟s share register

Emerald had the following outstanding options as at 14 October 2013:

Number Current Options on Issue

Unlisted options exercise at $0.05 each expiring on 30 April 2014 117,600,000

Unlisted options exercisable at $0.05 each expiring on 28 June 2014 50,000,000

Total outstanding options 167,600,000

Source: Emerald‟s option register

These options are all out-of-the-money and therefore unlikely to be exercised.

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6. Profile of Confederate

Confederate is a privately held company incorporated on 27 September 2013 as a special purpose vehicle

for making the Offer. Tim Kestell and Peter Pynes are non-executive directors of Confederate, which is

owned equally by P&L Capital and Desertfox.

P&L Capital is a privately held entity controlled by Peter Pynes and his wife, Lara Pynes. P&L Capital holds

equity and property assets on behalf of its members, and acts as trustee for the P & L Capital Trust, which

holds assets on behalf of members of Peter Pynes‟ immediate family. Other than its interests in

Confederate and Emerald, P&L Capital also holds 100,000 shares in Indago Resources Pty Ltd and 10,001

shares in Capital Custodians Australia Pty Ltd.

Desertfox is a privately held entity controlled by Tim Kestell, who is its sole director and shareholder.

Desertfox holds cash and equity assets on behalf of its members, and acts as trustee for the Kestell Family

Trust, which holds assets on behalf of members of Tim Kestell‟s immediate family. Other than its interests

in Confederate and Emerald, Desertfox holds 800,000 shares in Indago Resources Pty Ltd and 759,505

shares in Emerald Capital Pty Ltd.

Confederate and its associates held 188,600,000 Emerald shares (a 19.99% interest) prior to the Offer.

Subsequently, Confederate acquired a further 44,765,101 Emerald shares through Offer acceptances to

hold a total of 233,365,101 shares with a voting power of 24.73% as at 4 November 2013.

7. Economic analysis

Recent information is consistent with global growth running a bit below average this year, with reasonable

prospects of a pick-up next year. Commodity prices have declined from their peaks, but generally remain

at high levels by historical standards. Inflation in most countries is well contained. Overall, global

financial conditions remain very accommodative. Volatility in financial markets has abated recently. Long-

term interest rates remain very low and there is ample funding available for creditworthy borrowers.

In Australia, the economy has been growing a bit below trend over the past year and the unemployment

rate has edged higher. This is likely to persist in the near term, as the economy adjusts to lower levels of

mining investment. Further ahead, private demand outside the mining sector is expected to increase at a

faster pace, though considerable uncertainty surrounds this outlook. There has been an improvement in

indicators of household and business sentiment recently, but it is still too soon to judge how persistent

this will be. Public spending is forecast to be quite weak.

Recent data on prices show inflation consistent with the medium-term target. The Bank's assessment is

that this is likely to remain the case over the next one to two years. The easing in monetary policy that

has already occurred since late 2011 has supported interest-sensitive spending and asset values. The full

effects of these decisions are still coming through, and will be for a while yet. The pace of borrowing has

remained relatively subdued overall to date, though recently there have been signs of increased demand

for finance by households. There is also continuing evidence of a shift in savers' behaviour in response to

declining returns on low-risk assets. Housing and equity markets have strengthened further, trends which

should in time be supportive of investment.

The Australian dollar, while below its level earlier in the year, is still uncomfortably high. A lower level of

the exchange rate is likely to be needed to achieve balanced growth in the economy.

Source: www.rba.gov.au Statement by Glenn Stevens, Governor: Monetary Policy Decision 5 November 2013

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8. Industry analysis

8.1 Oil & Gas

The global oil and gas industry is one of the largest in the world and, as is inherent to large markets, it is

dominated by large highly integrated companies. The scale of operations by such companies, spanning

exploration to marketing, and the requirement for considerable initial investment represent very high

barriers to entry. Some major players in the oil and gas industry include ExxonMobil Corp, British

Petroleum and Chevron Texaco.

The growth of the industry has decelerated significantly with the drastic change in global economic

conditions since mid-2008. Many companies cut back their capital expenditure as a result of lower oil &

gas prices as well as tighter credit markets. The outlook for investment has since improved and it is

necessary for governments to provide companies with the necessary assistance to continue to develop and

sustain long term oil & gas projects. In 2012, oil production and consumption grew by 2.2% and 0.9%

respectively.

Despite the loss of Iranian supplies, OPEC countries are responsible for about 75% of the oil production

increase. Saudi Arabia, the UAE and Qatar have recorded the most significant increase in the oil output.

The OECD countries oil consumption decreased during 2012. On the contrary, China and Japan have

recorded the largest increment in oil demand. The largest gas consumers were China and Japan with a

consumption increase of 9.9% and 10.3% respectively. The largest gas producer remains the US with an

increase by 4.7% in 2012.

8.1.1 Shale Oil

Shale oil also known as tight oil or light tight oil, is a light crude oil found in some rock formations deep

below the earth‟s surface. More specifically, shale oil is contained in shale, limestone and sandstone

formations characterized by very low porosity and permeability. Based on the density of the hydrocarbon

and its ability to flow, shale oil is defined as medium-to-light grade. Because shale oil is medium-to-light

oil found in a low permeability reservoir, its production requires technologically advanced drilling and

completion processes such as horizontal drilling coupled with multi-stage fracturing. Therefore, the

production of tight oil is more costly than the production of conventional oil. Nevertheless, the oil itself

requires very little refinement and, generally, existing surface infrastructure can often be used what

reduces surface impact and capital investment.

8.1.2 Reserves

Oil

At the end of 2012, proved global oil reserves stood at 1,668.9 billion barrels or 235.8 billion tonnes. This

compares to a reserve of 1,321.5 billion barrels at the end of 2002, representing a 26.3% increase over the

decade. The geographic distribution of these reserves is set out in the graph below.

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Source: BP Statistical Review of World Energy June 2013

The majority of oil reserves are centred in the Middle East, with South & Central America are also

accounting for a significant proportion. Proven oil reserves have increased considerably in North America,

from 122.1 thousand million barrels at the end of 1992 to 220.2 thousand million barrels at the end of

2012. North America had a 13.2% share of the total production of oil in 2012 and the US has recorded the

largest increase in production for a non-OPEC country for the last three years consecutively. Venezuela is

the largest producer with 17.8% of world output, followed by Saudi Arabia and Canada with 15.9% and

10.4% respectively.

Gas

The proved global reserve of natural gas at the end of 2012 was measured at 187.3 trillion cubic metres.

This compares to a reserve of 154.9 trillion cubic metres at the end of 2002, representing a 20.9% increase

over the decade. The Middle East, Europe and Eurasia are the biggest players collectively representing 76%

of total proved gas reserves. Iran is the largest producer with 17.9% of world output, followed by Russia

with 17.5%.

Source: BP Statistical Review of World Energy June 2013

13%

20%

8%48%

8%

3%

Global Proved Oil Reserves- 2012 end

North America

South & Central America

Europe & Eurasia

Middle East

Africa

Asia Pacific

6%

4%

31%

43%

8%8%

Global Proved Gas Reserves - 2012 end

North America

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8.1.3 Price Trends

Supply and demand factors are most influential in driving fluctuations in oil and gas prices. For example

meetings held by OPEC to determine short term oil supply are often followed by volatile price movements.

The graph below highlights the dramatic change in oil and gas prices in and around the time of the global

financial crisis. In the six months from June 2008 onwards, the price of oil peaked at approximately

US$140 a barrel and plummeted towards a low of US$30 a barrel.

Source: Bloomberg and Consensus economics

There has been much conjecture regarding the recovery of oil prices post the 2008 financial crisis, given

that the economy environment has remained relatively weak and has experienced a slow recovery.

The graph above illustrates how natural gas prices were highly correlated with oil prices between 2007

and 2010. However, in the year 2011 there has been a divergence in natural gas and oil prices. This is

believed to have been sparked by developments in shale gas production and has meant that natural gas

prices have been at record discounts to oil prices. In 2012, oil and gas prices slightly grew, with an

average increase by 0.66% in the oil prices.

The average oil price per barrel was about US$107 in 2012. Gas prices increased in Europe but decreased

in North-America (US and Canada) in 2012.

Since the divergence noted in 2011 the oil and gas prices have generally moved in the same direction with

a forecasts predicting a similar trend.

0

2

4

6

8

10

12

14

0

20

40

60

80

100

120

140

160

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

US$/

MM

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US$/

Barr

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NYMEX Futures

Crude Oil Futures Crude Oil Forecast Price

Natural Gas Futures Natural Gas Forecast Price

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8.1.4 Outlook

Oil and gas production has increased over the last 20 years and is forecast to continue doing the save in

the short to long term future. Non-OPEC supply is forecast to grow largely as a result of strong growth in

America from the US.

The graph below illustrates a narrowing gap in production between oil and gas over the next 20 years. This

reflects the idea that although oil is expected to be slowest growing fuel over the next 20 years. This is in

stark contrast to natural gas which is forecast to be the fastest growing fossil fuel globally.

Source: 2013_BP-Energy-Outlook-2030-summary-tables

Substitutes for oil & gas include coal, solar power, wind power, hydroelectricity and nuclear energy. While

there is sustained pressure to find alternative forms of energy, the reality is that oil, gas and coal still

account for the large majority of energy production around the world.

In addition, the development and deployment of new technologies allow the expansion of supply from

unconventional sources such as shale gas and tight oil. Shale gas and tight oil will account for almost 20%

of the increase in global energy supply to 2030.

As reserves are depleted and alternative fuels become more available with advances in technology,

traditional fuel sources will face a more apparent threat of substitution. However for the medium term

future oil and gas will continue to play a major role in all economies, representing almost 50% of the

growth in energy supply.

0

1000

2000

3000

4000

5000

1990 1995 2000 2005 2010 2015 2020 2025 2030

Million t

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Historical & Forecast Oil & Gas Production

Oil Production Natural Gas Production

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9. Valuation approach adopted

There are a number of methodologies which can be used to value a business or the shares in a company.

The principal methodologies which can be used are as follows:

Capitalisation of future maintainable earnings (“FME”)

Discounted cash flow (“DCF”)

Quoted market price basis (“QMP”)

Net asset value (“NAV”)

Market based assessment

A summary of each of these methodologies is outlined in Appendix 2.

Different methodologies are appropriate in valuing particular companies, based on the individual

circumstances of that company and available information.

9.1 Valuation of Emerald

In our assessment of the value of Emerald shares we have chosen to employ the following methodologies:

sum-of parts method, as our primary method, which estimates the market value of a company by

separately valuing each asset and liability of the company. The value of each asset may be

determined using different methods. The component parts of Emerald are valued using the NAV

method; and

QMP approach as our secondary method.

Sum-of-parts

We have employed the sum-of-parts method in estimating the fair market value of Emerald by aggregating

the estimated fair market values of its underlying assets and liabilities, having consideration to the

following:

valuation of Emerald‟s investment in Emerald Oil Inc (applying the QMP method);

Emerald‟s Appalachian Project (applying the cost approach under the NAV method); and

value of other assets and liabilities of Emerald (applying the cost approach under the NAV

method).

Methodologies adopted

We have chosen these methodologies for the following reasons:

Emerald Oil Inc is listed on the New York Stock Exchange (“NYSE”) which provides an indication of

the market value where an observable market for the securities exists;

Although Emerald‟s Appalachian Project is currently in production and a DCF methodology is

suitable as a valuation approach, the Company was unable to provide sufficiently reliable forecast

information for us to undertake a DCF valuation. Further reasons are set out in section 10.2. As

such we consider that the Appalachian Project is most suitably valued using a cost approach under

the NAV method; and

Other component parts of Emerald are valued using the NAV method.

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10. Valuation of Emerald

We have employed the sum-of-the parts method in estimating the fair market value of Emerald by

aggregating the estimated fair market values of its underlying assets and liabilities, having consideration

to the following:

valuation of Emerald‟s interest in Emerald Oil Inc (applying the QMP method);

Emerald‟s Appalachian Project (applying the cost approach under the NAV method); and

value of other assets and liabilities of Emerald (applying the cost approach under the NAV

method).

10.1 Valuation of Emerald Oil Inc.

Emerald Oil Inc is a US public company listed on the NYSE. Emerald Oil Inc is an independent exploration

and production operator that has its primary assets located in the Williston Basin of North Dakota and

Montana.

Given that Emerald Oil Inc is a NYSE listed company where an observable market for the securities exists,

we have used the QMP approach as our valuation methodology.

The quoted market value of a company‟s shares is reflective of a minority interest. A minority interest is

an interest in a company that is not significant enough for the holder to have an individual influence in the

operations and value of that company. Emerald has a 2.56% holding in Emerald Oil Inc, which we consider

to be reflective of a minority interest.

Minority interest value

The following chart provides a summary of the share price movement over the 12 months to 8 November

2013.

Source: Bloomberg & BDO Analysis

The daily price of Emerald Oil Inc shares from 8 November 2012 to 8 November 2013 has ranged from a

low of $3.90 on 15 November 2012 to a high of $9.20 on 25 October 2013.

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2.0

3.0

4.0

5.0

6.0

7.0

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0.001.002.003.004.005.006.007.008.009.00

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S)

Emerald Oil Inc share price and trading volume history

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On 22 October 2012, Emerald Oil Inc announced that its shareholders had approved a 1-for-7 reverse stock

split. The reverse stock split became effective on 22 October 2010 and reduced the number of outstanding

shares in Emerald Oil Inc from 163.7 million shares to approximately 23.4 million shares.

The key announcements made to the market during this period are set out below:

Date Announcement

Closing Share Price

Following

Announcement

Closing Share Price

Three Days After

Announcement

US$ (movement) US$ (movement)

5/11/2013 Emerald Oil Reports Third Quarter Results & Establishes

2014 Guidance

8.67 1.4% 7.81 9.9%

17/10/2013 Emerald Oil, Inc. Announces Completion of Private

Placement

8.51 11.0% 8.70 2.2%

2/10/2013 Emerald Oil, Inc. Announces Completion of Common

Stock Offering and Exercise of Over-Allotment Option

7.25 0.7% 7.67 5.8%

26/09/2013 Emerald Oil, Inc. Announces Pricing of Public Offering

of Common Stock

7.12 8.7% 7.30 2.5%

23/09/2013 Emerald Oil Receives Commitment From White Deer to

Acquire Common Stock

7.10 0.1% 7.12 0.3%

23/09/2013 Emerald Oil Announces Offering of Common Stock 7.10 0.1% 7.12 0.3%

23/09/2013 Emerald Oil Adds 33,851 Net Operated Acres in the

Williston Basin, Adds Third Rig -- Introduces 2014

Operating Capital Plan, Establishes 2014 Production

Guidance

7.10 0.1% 7.12 0.3%

9/09/2013 Emerald Oil Announces Sale of Substantially All Non-

Operated Assets

6.98 1.0% 7.42 6.3%

6/08/2013 Emerald Oil Reports Second Quarter 2013 Results 8.05 2.4% 7.15 11.2%

25/06/2013 Emerald Oil, Inc. Operations Update 6.75 4.3% 6.86 1.6%

4/06/2013 Emerald Oil, Inc. Announces Completion of Private

Placement

6.18 1.0% 6.43 4.0%

22/05/2013 Emerald Oil, Inc. Announces Completion of Common

Stock Offering and Exercise of Over-Allotment Option

6.06 2.4% 6.21 2.5%

17/05/2013 Emerald Oil, Inc. Announces Pricing of Upsized Public

Offering of Common Stock

6.11 3.0% 6.06 0.8%

13/05/2013 Emerald Oil Receives Commitment From White Deer to

Acquire Common Stock

6.53 5.4% 6.30 3.5%

13/05/2013 Emerald Oil Announces Offering of Common Stock 6.53 5.4% 6.30 3.5%

13/05/2013 Emerald Oil Adding Second Rig, Increases Capital

Budget and Guidance

6.53 5.4% 6.30 3.5%

8/05/2013 Emerald Oil Reports First Quarter 2013 Results 6.59 3.1% 6.53 0.9%

13/03/2013 Emerald Oil, Inc. Reports Financial and Operational

Results for Its Fourth Quarter Ended December 31, 2012

6.97 0.3% 7.14 2.4%

4/02/2013 Emerald Oil, Inc. Increases Production Guidance and

Capital Expenditure Budget

5.98 0.7% 6.35 6.2%

4/02/2013 White Deer Invests $50 Million in Emerald Oil, Inc. 5.98 0.7% 6.35 6.2%

8/01/2013 Emerald Oil, Inc. Announces Agreement to Sell Sand

Wash Basin Leases

5.77 3.4% 6.00 4.0%

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Date Announcement

Closing Share Price

Following

Announcement

Closing Share Price

Three Days After

Announcement

US$ (movement) US$ (movement)

10/12/2012 Emerald Oil, Inc. Announces Appointment of Chief

Operating Officer

4.92 0.6% 4.82 2.0%

20/11/2012 Emerald Oil, Inc. Announces Senior Credit Facility With

Wells Fargo

4.99 6.9% 5.00 0.2%

8/11/2012 Emerald Oil, Inc. Reports Financial and Operational

Results for Its Third Quarter Ended September 30, 2012

4.85 5.2% 4.59 5.4%

Source: Bloomberg & BDO Analysis

On 20 November 2012, Emerald Oil Inc announced that it had secured a senior credit facility with Wells

Fargo. The senior credit facility, which has a maximum commitment up of to $400 million and an initial

borrowing base of $27.5 million, may be used to acquire oil and gas properties, to fund general corporate

and working capital requirements as well as to refinance existing debt. The market responded positively

to the announcement and the share price of Emerald Oil Inc closed up 6.9%. The share price stabilised

over the following three trading days.

On 8 January 2013, Emerald Oil Inc announced that it had reached an agreement to sell approximately

30,902 net acres in the Sand Wash Basin. This was in line with the company‟s signal to the market that it

planned to monetise its secondary assets in order to fund its operations at the Williston Basin. The share

price increased by 3.4% on the day of the announcement and a further 4.0% over the following three

trading days.

On 4 February 2013, Emerald Oil Inc announced that White Deer Energy (“White Deer”) had agreed to

invest $50 million, the proceeds of which would be used to increase Emerald Oil Inc‟s capital expenditure

over the next 15 months and increase production guidance to produce approximately 2,600 barrels of oil

per day (previously 2,000 barrels of oil per day). The share price declined by an insignificant amount on

the day of the announcement but increased by 6.2% over the following three trading days.

On 13 May 2013, Emerald Oil Inc announced the following information:

the implementation of an additional drilling rig to accelerate development at the Williston Basin;

an increase to the capital expenditure budget for the year 2013;

an underwritten public offering of 10 million shares; and

a private placement which would involve the issue of common stock to affiliates of White Deer.

The number of shares issued to White Deer under the private placement would be determined

such that White Deer would hold 19.9% of the common stock at its completion.

The share price of Emerald Oil Inc declined by 5.4 per cent on the day this information was announced and

a further 3.5 per cent over the following three trading days. This type of reaction from the market could

be expected under the notion that the issue of stock, in this case the combination of a public offering and

private placement, can be perceived as an indication that the stock is overvalued.

On 9 September 2013, Emerald Oil Inc announced the sale of all non-operated assets for $113 million, that

it had increased its production guidance and that it had surpassed its year end operated acreage target.

The share price of Emerald Oil Inc increased by 1.0 per cent on the day of the announcement and a

further 6.3% over the following three trading days.

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On 23 September 2013, Emerald Oil Inc announced its intentions to commence an underwritten public

offering of 15 million shares of its common stock. The issue was priced on 26 September 2013 at $6.70 per

share. On the day of this announcement the share price of Emerald Oil Inc increased by 8.7%. The issue of

15 million shares, as well as 2.25 million additional shares due to underwriters exercising their over-

allotment option completed on 2 October 2013 and resulted in net proceeds of approximately $109.7

million. Over the three trading days following the completion of the public issue, the share price of

Emerald Oil Inc increased by 5.8 per cent to $7.67 per share.

On 17 October 2013, Emerald Oil Inc announced that it had completed the sale of 5,092,852 shares of its

common stock to affiliates of White Dear. The private placement raised approximately $32.5 million. On

the day of the announcement of the completion of the private placement, Emerald Oil Inc‟s share price

increased by 11.0%, representing the most significant share price appreciation over the period.

To provide further analysis of the market prices for an Emerald Oil Inc share, we have also considered the

volume weighted average market price (“VWAP”) for 10, 30, 60 and 90 day periods to 8 November 2013.

Share Price (US$) 8-Nov-13 10 Days 30 Days 60 Days 90 Days

Closing price $7.810

Volume weighted average price (VWAP) $8.423 $8.163 $7.832 $7.757

Source: BDO analysis

An analysis of the volume of trading in Emerald Oil Inc shares for the twelve months to 8 November 2013 is

set out below. The table calculates the cumulative volume traded as a percentage of the weighted

average number of shares outstanding in each of the relevant trading periods respectively. We have

performed this type of analysis to account for the multiple capital raising initiatives undertaken by

Emerald Oil Inc in the last 180 trading days.

Trading days

Share Price low

(US$)

Share price high

(US$)

Cumulative volume

traded

As a % of weighted

average no. of shares

for trading period

1 Day $7.510 $7.940 1,178,231 1.82%

10 Days $7.420 $9.140 15,008,516 23.09%

30 Days $7.000 $9.200 49,235,582 76.35%

60 Days $6.361 $9.200 69,774,423 131.61%

90 Days $6.361 $9.200 79,689,661 160.98%

180 Days $5.810 $9.200 111,807,108 278.75%

Source: Bloomberg & BDO analysis

This table indicates that Emerald Oil Inc shares display a high level of liquidity, with 278.75% of the

Company‟s weighted average issued capital being traded over a 180-day trading period. We note that this

180-day period is post the reverse stock split implemented by Emerald Oil Inc on 22 October 2012. For the

quoted market price methodology to be reliable there needs to be a „deep‟ market in the shares. RG

111.69 indicates that a „deep‟ market should reflect a liquid and active market. We consider the

following characteristics to be representative of a deep market:

regular trading in a company‟s securities;

approximately 1% of a company‟s securities are traded on a weekly basis;

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the spread of a company‟s shares must not be so great that a single minority trade can

significantly affect the market capitalisation of a company; and

there are no significant but unexplained movements in share price.

A company‟s shares should meet all of the above criteria to be considered „deep‟, however, failure of a

company‟s securities to exhibit all of the above characteristics does not necessarily mean that the value

of its shares cannot be considered relevant.

In the case of Emerald Oil Inc, we consider the market for their securities to be deep. We have

determined this primarily on the sheer volume of Emerald Oil Inc securities that have been traded over a

180-day trading day period, limited unexpected or unexplained movements in Emerald Oil Inc‟s share

price and the ability for Emerald Oil Inc to successfully raise capital through public and private equity

markets in recent times.

Our assessment is that a range of values for Emerald Oil Inc shares based on market pricing, after

disregarding post announcement pricing, is between US$7.50 and US$8.50 per share, with a midpoint value

of US$8.00 per share.

Our calculation of Emerald‟s interest in Emerald Oil Inc is outlined in the table below.

Emerald’s interest in Emerald Oil Inc. Low Midpoint High

QMP value of Emerald Oil Inc. (US$) 7.500 8.000 8.500

Number of Emerald Oil Inc shares on issue (million) 64.822 64.822 64.822

Value per share multiplied by number of shares on issue (US$ million) 486.168 518.579 550.990

Emerald's interest in Emerald Oil Inc. 2.56% 2.56% 2.56%

Value of Emerald's interest in Emerald Oil Inc (US$ million) 12.466 13.297 14.128

AUD/USD exchange rate as @ 8 November 2013 1.066 1.066 1.066

Value of Emerald's interest in Emerald Oil Inc (A$ million) 13.289 14.175 15.061

Source: BDO analysis

Based on the assumptions detailed in the table above, our assessment is that a range of values for

Emerald‟s interest in Emerald Oil Inc shares is between $13.289 million and $15.061 million with a

midpoint value of $14.175 million.

10.2 Valuation of the Appalachian Project

For the past three years, gas production at the Appalachian Project has been limited to sweet gas (low

sulphur), which Emerald has been producing through KEP‟s owned and operated gas production system at

about 300 Mcfd.

KEP is processing both sweet and sour (high sulphur) gas through a recently commissioned sour gas plant

owned by a third party. As the new plant has only been recently connected, production has been

intermittent during the plant commissioning period and total production is still only about 300 Mcfd. At

this level, Emerald expects to generate gross annual revenue of $0.275 million and net operating cash

flows of $975.

Due to higher pipeline pressure that restricted production, a compressor was purchased and installed in

July 2013 for capital expenditure of approximately $25,000. Emerald expects gas production to increase to

700 Mcfd once the production systems are fully operational and stabilised. At this level, Emerald expects

to generate gross annual revenue of $0.612 million and net operating cash flows of $0.296 million.

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We have been provided with cash flows for only the 12-month period from August 2013 to July 2014. Given

that there has been a material change to the Appalachian Project‟s operations and production capacities,

historic cash flows are not indicative of future cash flows.

As the compressor has only recently been installed, there is no production history to be able to reliably

estimate the likely production profile in the future. On this basis, no reliable long term cash flow forecast

and no meaningful technical reports could be prepared as at the date of our Report.

Considering all of the above, we valued the Appalachian Project on its book value on the basis that the

DCF valuation methodology was not applicable in this instance and its fair market value is not expected to

be materially different from its book value of $999,220 as at 30 June 2013. We have further assessed that,

given the size of the Appalachian Project, any difference between its book value and market value is not

expected to be material to the overall value of Emerald.

In our opinion, the value of the Appalachian Project, based on its book value as at 30 June 2013, is

approximately $999,220 (consisting of property, plant and equipment of $182,037, exploration and

evaluation expenditure of $287,034 as well as oil and gas assets of $530,149).

10.3 Valuation of Other Assets and Liabilities

Other assets and liabilities represent the assets and liabilities which have not been specifically adjusted.

The Company provided BDO with unaudited management accounts as at 30 September 2013. From our

review of these other assets and liabilities, outlined in the table below, we do not believe that there is a

material difference between Emerald‟s book value and market value unless an adjustment has been noted

below. The table below represents a summary of the assets and liabilities identified.

Audited as at Value of other

30-Jun-13 Adjustment assets & liabilities

Statement of Financial Position Note $ $ $

CURRENT ASSETS

Cash and cash equivalents a) 403,672 (333,672) 70,000

Trade and other receivables 40,242 - 40,242

Financial assets at fair value through profit and loss b) 12,485,233 (12,445,233) 40,000

TOTAL CURRENT ASSETS 12,929,147 (12,778,905) 150,242

NON-CURRENT ASSETS

Property, plant and equipment c) 182,037 (182,037) -

Exploration and evaluation expenditure d) 389,068 (389,068) -

Oil and gas assets e) 530,149 (530,149) -

TOTAL NON-CURRENT ASSETS 1,101,254 (1,101,254) -

TOTAL ASSETS 14,030,401 (13,880,159) 150,242

CURRENT LIABILITIES

Trade and other payables 64,024 - 64,024

TOTAL CURRENT LIABILITIES 64,024 - 64,024

TOTAL LIABILITES 64,024 - 64,024

NET ASSETS 13,966,377 (13,880,159) 86,218

Source: BDO Analysis

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We have been advised that there has not been a significant change in the net assets of Emerald since 30

June 2013 and that the above value of assets and liabilities represent their fair market values apart from

the adjustments discussed below:

a) On 29 July 2013, Emerald announced that it had executed a sale agreement over all of its Canning

Basin interests with Key Petroleum. The consideration provided includes $50,000 cash

consideration. We have been advised by Emerald that the cash position as at the date of our

Report is approximately $70,000.

b) As at 30 June 2013, the financial assets at fair value balance of $12.485 million represents

Emerald's investment in Emerald Oil Inc. We have removed all of this value as we have considered

the value of Emerald's investment in Emerald Oil Inc in section 10.1 of our Report.

On 29 July 2013, Emerald announced that it had executed a sale agreement over all of its Canning

Basin interests with Key Petroleum. The consideration offered by Key Petroleum to Emerald

included the issue of 4 million ordinary shares. We have determined the fair market value of four

million ordinary shares in Key Petroleum as at 8 November 2013 based on Key Petroleum's closing

bid price. The value of Key Petroleum shares was determined to be $40,000 which we have

retained in our value of other assets and liabilities.

c) The property, plant and equipment balance as at 30 June 2013, which relates entirely to the

Appalachian Project, has been removed.

d) Exploration and evaluation expenditure relating to the Appalachian Project as well as the Canning

Basin interests has been removed.

e) The oil & gas assets balance as at 30 June 2013, which relates entirely to the Appalachian Project,

has been removed.

The value of the Appalachian Project has been considered in section 10.2 of our Report.

10.4 Shares on issue

In determining a valuation per share for Emerald, we applied the number of Emerald shares on issue of

943,651,304 prior to the Offer.

10.5 Sum-of-parts valuation assessment

The fair market value of Emerald is summarised as follows:

Emerald Oil & Gas NL Low Midpoint High

Value of Emerald's interest in Emerald Oil Inc (A$ million) 13.289 14.175 15.061

Value of the Appalachian Project (A$ million) 0.999 0.999 0.999

Value of Emerald's other assets and liabilities (A$ million) 0.086 0.086 0.086

Equity Value (control basis) 14.374 15.260 16.146

Shares on issue (million) 943.7 943.7 943.7

Value per share (A$) 0.0152 0.0162 0.0171

Source: BDO Analysis

Based on the sum-of-parts valuation above, we estimate the fair market value of an Emerald share to be

in the range of $0.0152 and $0.0171 with a midpoint value of $0.0162.

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10.6 Quoted Market Prices for Emerald Securities

To provide a comparison to the valuation of Emerald in section 10.5, we have also assessed the quoted

market price for an Emerald share.

The quoted market value of a company‟s shares is reflective of a minority interest. A minority interest is

an interest in a company that is not significant enough for the holder to have an individual influence in the

operations and value of that company.

RG 111.11 suggests that when considering the value of a company‟s shares for the purposes of approval

under Item 7 of s611 the expert should consider a premium for control. An acquirer could be expected to

pay a premium for control due to the advantages they will receive should they obtain 100% control of

another company. These advantages include the following:

control over decision making and strategic direction

access to underlying cash flows

control over dividend policies

access to potential tax losses.

RG 111.13 states that the expert can then consider an acquirer‟s practical level of control when

considering reasonableness. Reasonableness has been considered in section 13.

Therefore, our calculation of the quoted market price of an Emerald share including a premium for control

has been prepared in two parts. The first part is to calculate the quoted market price on a minority

interest basis. The second part is to add a premium for control to the minority interest value to arrive at

a quoted market price value that includes a premium for control.

Minority interest value

Our analysis of the quoted market price of an Emerald share is based on the pricing prior to the

announcement of the Offer since the value of an Emerald share after the announcement may include the

effects of any change in value as a result of Offer. However, we have considered the value of an Emerald

share following the announcement when we have considered reasonableness in section 13.

Information on the Offer was announced to the market on 1 October 2013. Therefore, the following chart

provides a summary of the share price movement over the 12 months to 30 September 2013 which was the

last trading day prior to the announcement.

Source: Bloomberg

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20.0

40.0

60.0

80.0

100.0

120.0

140.0

0.000

0.002

0.004

0.006

0.008

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me (

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Emerald share price and trading volume history

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The daily price of Emerald shares from 1 October 2012 to 30 September 2013 has ranged from a low of

$0.006 on 9 July 2013 to a high of $0.013 on 11 March 2013.

Emerald‟s share price movement over the period has generally trended downwards and is characterised by

intermittent extended plateaus. This is reflective of the infrequent trading of Emerald securities.

Emerald‟s share price recovered in the period immediately prior to the announcement of the Offer. On 18

September 2013, approximately 133 million Emerald securities were traded, reflecting on-market

purchases of Emerald securities conducted by Confederate. The high volume of Emerald securities traded

on this day was associated with an 11.0 per cent increase in Emerald‟s share price.

The key announcements made to the market during this period are set out below:

Date Announcement

Closing Share Price

Following

Announcement

Closing Share Price

Three Days After

Announcement

$ (movement) $ (movement)

2/08/2013 Reinstatement to Official Quotation 0.0080 6.7% 0.0080 12.5%

2/08/2013 OGH: Scheme of Arrangement to Merge with EMR 0.0080 6.7% 0.0070 12.5%

2/08/2013 Implementation Deed for Merger with Ochre Group Holdings

0.0080 6.7% 0.0070 12.5%

30/07/2013 Suspension from Official Quotation 0.0075 0.0% 0.0080 6.7%

30/07/2013 Suspension from Official Quotation 0.0075 0.0% 0.0080 6.7%

29/07/2013 KEY: Acquisition of Participating Interests - EP104 & R1

0.0075 0.0% 0.0075 0.0%

29/07/2013 Sale of Participating Interests 0.0075 0.0% 0.0075 0.0%

26/07/2013 Trading Halt 0.0075 7.1% 0.0075 0.0%

30/04/2013 Quarterly Activities & Cashflow Report 0.0090 12.5% 0.0090 0.0%

26/02/2013 OGH: Strategic Investment in Emerald Oil & Gas NL by Ochre

0.0100 11.1% 0.0080 20.0%

31/01/2013 Quarterly Cashflow & Activities Report 0.0100 11.1% 0.0090 10.0%

13/11/2012 In Specie distribution of holding in Emerald Oil Inc. 0.0100 0.0% 0.0080 20.0%

31/10/2012 Quarterly Activities & Cash Flow Report 0.0120 9.1% 0.011 8.3%

Source: Bloomberg & BDO Analysis

On 2 August 2013, Ochre announced that it had entered into a merger implementation deed with Emerald

to give effect to a scheme of arrangement to combine the companies. Although the share price increased

by 6.7% on the day of the announcement, within the following three trading days the share price reverted

to $0.0070, a value below its pre-Offer price.

On 26 July 2013, Emerald requested a trading halt pending an announcement to be made by the Company.

On this day an abnormally high volume of securities, over 30 million, were traded. Accompanying this high

volume of trading was a 7.1 per cent increase in Emerald‟s share price.

On 29 July 2013, Emerald announced that it had executed a sale agreement over all of its Canning Basin

interests with Key Petroleum. Emerald securities were subject to a trading halt at this time and as such

the market was not able to respond to this price sensitive information.

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On 30 April 2013, Emerald released its quarterly activities and cashflow report. The highlight of the report

was the initial sour gas production at the Appalachian Project. The Company‟s share price increased by

12.5 per cent on the day of the announcement but fell 10 per cent over the following three trading days.

On 26 February 2013, Ochre acquired 120 million shares in Emerald, representing 12.717% stake in the

Company. Initially, the market responded positively to this strategic investment made by Ochre, with the

Company‟s share price increasing by 11.1 per cent on the day of the announcement. However this increase

was not sustained as Emerald‟s share price decreased 20 per cent over the following three trading days.

On 13 November 2012, the Company announced that it would seek shareholders‟ approval for the

proposed in specie distribution of its holding in Emerald Oil Inc. Although Emerald‟s share price did not

change on the day of the announcement, it declined 20 per cent over the following three days. The

negative reaction from shareholders was confirmed by the results of the notice of meeting released on 24

May 2013. The lag in response may be reflective of the illiquidity of Emerald‟s securities.

To provide further analysis of the market prices for an Emerald share, we have also considered the VWAP

for 10, 30, 60 and 90 day periods to 30 September 2013.

Share Price per unit 30-Sep-13 10 Days 30 Days 60 Days 90 Days

Closing price $0.0120

Volume weighted average price (VWAP) $0.0105 $0.0104 $0.0095 $0.0091

Source: BDO Analysis

The above weighted average prices are prior to the date of the announcement of the Offer, to avoid the

influence of any increase in price of Emerald shares that has occurred since the Offer was announced.

Below is an analysis of the 12-month volume of trading in Emerald shares to 30 September 2013:

Trading days Share price Share price Cumulative volume As a % of

low high traded Issued capital

1 Day $0.010 $0.012 2,572,000 0.27%

10 Days $0.009 $0.012 136,732,244 14.49%

30 Days $0.007 $0.012 144,076,910 15.27%

60 Days $0.006 $0.012 209,478,809 22.20%

90 Days $0.006 $0.012 233,300,261 24.72%

180 Days $0.006 $0.013 276,088,038 29.26%

1 Year $0.006 $0.013 341,616,984 36.20%

Source: Bloomberg and BDO analysis

This table indicates that Emerald‟s shares display a low level of liquidity, with 36.20% of the Company‟s

current issued capital being traded in a twelve month period. For the quoted market price methodology

to be reliable there needs to be a „deep‟ market in the shares. RG 111.69 indicates that a „deep‟ market

should reflect a liquid and active market. We consider the following characteristics to be representative

of a deep market:

regular trading in a company‟s securities;

approximately 1% of a company‟s securities are traded on a weekly basis;

the spread of a company‟s shares must not be so great that a single minority trade can significantly

affect the market capitalisation of a company; and

there are no significant but unexplained movements in share price.

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A company‟s shares should meet all of the above criteria to be considered „deep‟, however, failure of a

company‟s securities to exhibit all of the above characteristics does not necessarily mean that the value

of its shares cannot be considered relevant.

In the case of Emerald, we do not consider the market for their securities to be deep.

Our assessment is that a range of values for Emerald shares based on market pricing, after disregarding

post announcement pricing, is between $0.0090 and $0.0120, with a midpoint value of $0.0105.

Control Premium

We have reviewed the announced control premiums paid by acquirers of public global oil & gas companies

as well oil & gas companies listed on the ASX. We have summarised our findings below:

Criteria Transaction

Period

Number of

Transactions

Average Deal

Value (US$m)

Average

Control

Premium

Median

Control

Premium Global oil & gas targets 2006-2013 392 984.8 30.4% 21.7%

ASX listed oil & gas targets 2006-2013 33 340.6 46.7% 43.2%

Source: Bloomberg and BDO Analysis

A summary of the breakdown of announced control premiums paid by acquirers of public global oil & gas

companies, for each year in the transaction period, is detailed in the table below.

Year

Number of

Transactions

Average Deal

Value (A$m)

Average Control

Premium (%)

2013 12 127.86 35.25

2012 48 1202.10 29.08

2011 39 1407.81 28.93

2010 43 556.31 28.17

2009 56 1626.00 47.12

2008 61 595.84 33.76

2007 75 927.23 24.28

2006 58 887.46 21.25

Median 907.34 29.01

Mean 916.33 30.98

Source: Bloomberg and BDO Analysis

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The following table provides a breakdown of announced control premiums paid by acquirers of oil & gas

companies listed on the ASX, for each year in the transaction period.

Year

Number of

Transactions

Average Deal

Value (A$m)

Average Control

Premium (%)

2013 - - N/A

2012 5 66.12 34.64

2011 3 365.57 42.64

2010 6 679.78 40.09

2009 3 235.14 62.01

2008 10 365.11 66.36

2007 2 6.61 18.59

2006 4 340.94 28.46

Median 340.94 40.09

Mean 294.18 41.83

Source: Bloomberg and BDO Analysis

In arriving at an appropriate control premium to apply, we note that observed control premiums can vary

due to the:

Nature and magnitude of non-operating assets

Nature and magnitude of discretionary expenses

Perceived quality of existing management

Nature and magnitude of business opportunities not currently being exploited

Ability to integrate the acquiree into the acquirer‟s business

Level of pre-announcement speculation of the transaction

Level of liquidity in the trade of the acquiree‟s securities.

Our analysis revealed that the mean and median announced control premia paid by acquirers of ASX listed

oil & gas targets was higher compared to the sample containing global targets. However, the average

announced premium and deal value for the acquisition of ASX listed oil & gas targets was significantly

lower in 2012 compared to the overall transaction period.

There is also a discrepancy between the mean and median announced control premia paid by acquirers of

global oil & gas targets. This is because extreme outliers in the sample have positively skewed the mean.

For example, in 2009, Bonterra Energy Corp acquired 95.7% of Cobalt Energy Limited at announced

premium of 747 per cent. In such data sets, it is more appropriate to refer to the median statistic as a

measure of central tendency.

We have applied greater weighting to transactions that occurred from 2011 onwards. We consider these

transactions to be most reflective of what current control premiums may be paid given the current

economic and industry conditions.

Based on the results above, we have concluded that an appropriate control premium to use in our

valuation for Emerald is between 25% and 35%, with a preferred control premium of 30%.

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Quoted market price including control premium

Applying a control premium to Emerald‟s quoted market share price results in the following quoted market

price value including a premium for control:

Low Midpoint High

Emerald Oil & Gas NL $ $ $

Quoted market price value 0.0090 0.0105 0.0120

Control Premium 25% 30% 35%

Quoted market price valuation including control premium 0.0113 0.0137 0.0162

Source: BDO Analysis

Therefore, our valuation of Emerald‟s share based on QMP method and including a premium for control is

between $0.0113 and $0.0162, with a midpoint value of $0.0137.

10.7 Assessment of Emerald Value

The results of the valuations performed are summarised in the table below:

Emerald Oil & Gas NL Low Midpoint High

$ $ $

Sum-of-parts (primary valuation methodology) 0.0152 0.0162 0.0171

Quoted market price valuation including a premium for control 0.0113 0.0137 0.0162

Source: BDO Analysis

We note that the values obtained from the sum-of-parts approach are higher than the values obtained

from the QMP approach up to 30 September 2013. The substantial increase in the value of Emerald Oil Inc

shares since 30 September 2013 is one key reason for this difference.

Our QMP analysis also shows that there is low liquidity in the trading of Emerald shares and the market for

its shares is not deep. RG 111.69 requires the consideration of the presence of a liquid and active market

for the QMP methodology to be appropriate.

On the other hand, our QMP analysis of the trading of Emerald Oil Inc shares shows that there is a deep

and sufficiently active trading market for Emerald Oil Inc shares. Based on our sum-of-parts valuation,

Emerald‟s investment in Emerald Oil Inc‟s shares make up over 90% of the value of the Company.

Therefore, in the absence of a sufficiently active trading market for Emerald‟s shares, our preferred value

on a control basis is based on the sum-of-parts valuation.

Based on the results above, we consider the value of an Emerald share to be between $0.0152 and

$0.0171, with a midpoint value of $0.0162.

11. Valuation of the Offer consideration

Under the Offer, Shareholders will receive 1.4 cents cash per share for 30% of the shares held by each

Shareholder.

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12. Is the Offer fair?

We determined that the controlling interest value of an Emerald share is higher than the cash

consideration Shareholders will receive under the Offer. Therefore, we conclude that the Offer is not fair

for Shareholders.

Low Mid High

Ref $ $ $

Value of an Emerald share 10.7 0.0152 0.0162 0.0171

Value of Offer consideration 11 0.0140 0.0140 0.0140

Source: BDO Analysis

13. Is the Offer reasonable?

13.1 Advantages of Accepting the Offer

We set out the key advantages that accepting the Offer is expected to bring to Shareholders.

13.1.1 Shareholders can dispose part of their investment with no transaction costs

The Offer is made to acquire 30% of the Emerald shares held by each Shareholder for a cash price of 1.4

cents per share. Shareholders will be able to dispose part of their investment in Emerald with no

brokerage costs or other associated selling costs for their shares. The absence of the need to incur

transaction costs increases the cash received by Shareholders.

13.1.2 Shareholders can receive a higher price than what they can sell in the market

Based on our QMP analysis and the closing price of $0.011 as at 8 November 2013, the Offer allows

Shareholders to receive a higher price, for 30% of their shares, than they are able to individually sell their

shares on the market.

13.1.3 Shareholders will still retain the opportunity to participate in the potential upside of Emerald

Shareholders will be able to obtain cash for a partial exit of their investment and still retain the

opportunity to participate in any potential upside of Emerald in respect of their remaining shareholding.

The Bidder‟s Statement sets out the current intentions of Confederate upon it gaining effective control of

Emerald but where Confederate is not entitled to proceed to compulsory acquisition in accordance with

Part 6A.1 of the Act. The key intentions are summarised as follows:

to appoint additional nominees to the Emerald board, depending on the extent of success of the

Offer and to maintain Emerald‟s listing on the ASX;

to consider the potential disposal of Emerald Oil Inc shares held by Emerald but review and

continue current exploration programmes and budgets for the Appalachian Project;

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to review Emerald‟s operations on a strategic, operational and financial level to evaluate

Emerald‟s performance and corporate direction; and

to review potential cost savings by reducing staff numbers and/or consolidating back office work.

Depending on the outcome of the above reviews conducted and the strategies concluded on, the future

business of Emerald may not be a passive holding of a listed company‟s shares, which currently constitutes

the Company‟s main asset. Any potential upside is likely to come from undertaking active operations in

the oil and gas sector, albeit that this will entail some risks.

13.2 Disadvantages of Accepting the Offer

We set out the key disadvantages of accepting the Offer in the following section.

13.2.1 The Offer is not fair

As determined in section 12, the controlling interest value of an Emerald share is higher than the cash

consideration Shareholders will receive under the Offer. Therefore, the Offer is not fair for Shareholders.

13.2.2 Shareholders will have their shareholding diluted

Shareholders will have their collective shareholding diluted from 80.01% to 56.01% if all Shareholders

accept the Offer. Shareholders will be passing a substantial amount of control to Confederate and its

associates, as a result of an increase in Confederate and its associates‟ shareholding from 19.99% prior to

the Offer up to 43.99%.

13.2.3 Reduction in liquidity

If Shareholders accept the Offer, trading in Emerald shares may be negatively affected by the presence of

a major shareholder with 43.99% ownership. The existing shares will therefore have a materially lower

free float on a proportional basis which may reduce liquidity.

13.2.4 Decreases the likelihood of a full takeover offer

If Shareholders accept the Offer, Confederate and its associates will hold approximately 44% of the issued

capital of Emerald. This may discourage any other potential bidder from making a takeover bid in the

future as Confederate and its associates will have significant control over the Company. This may have an

adverse effect on the share price of Emerald and may reduce the opportunity for Shareholders to receive

a takeover premium in the future.

13.2.5 Shareholders may be giving up the opportunity to realise the fair value of their shares through a better potential offer

Based on our QMP analysis, the Offer allows Shareholders to receive a higher price, for 30% of their shares,

than they are able to individually sell their shares on the market. Additionally, they would not incur

transaction costs associated with selling those shares.

Whilst this may suggest that it would be logical for Shareholders to accept the Offer on this basis,

Shareholders may be giving up the opportunity to receive a potentially better offer that could enable

them to realise the higher net asset value for their shares on a collective basis.

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As the shares of Emerald are trading at lower than its net asset value per share, Shareholders are unable

to realise the fair value of their shares on their own accord by selling them individually on the market.

However, they may be able to achieve this on a collective basis if a potentially better offer or takeover

bid is received.

13.3 Other Considerations

13.3.1 Alternative Proposals

We are unaware of any alternative proposal that might offer the Shareholders of Emerald a premium over

the value ascribed to, resulting from the Offer.

This section summarises the alternative proposals that have been recently received by Emerald since

August 2013.

Ochre scheme of arrangement

On 2 August 2013, Ochre announced it had entered into a merger implementation deed with Emerald to

give effect to a scheme of arrangement to combine the companies. Under the proposed scheme of

arrangement, Emerald shareholders would receive one Ochre share for every 2.75 Emerald shares held.

However, Ochre was subsequently informed that shareholders holding no less than 25 per cent of the

ordinary share capital of Emerald had advised Emerald that they would not support Ochre‟s proposal as

outlined under the implementation deed. On that basis, and by mutual agreement with Emerald, the

merger implementation deed entered into between Emerald and Ochre on 1 August 2013 was terminated

on 8 October 2013.

Offer from two investment funds

On 16 August 2013, Emerald received a term sheet jointly from two investment funds investing globally in

the securities markets with an offer of 0.975 cents per share for all the outstanding shares of Emerald.

The cash offer would have provided immediate cash liquidity for all shareholders of Emerald. However,

this offer was considered not to be a superior offer to the Ochre offer, which was still in place at that

time.

Intention to offer from a shareholder

On 19 September 2013, Emerald received a correspondence from a shareholder proposing that a resolution

be put forward again for the in-specie distribution of Emerald Oil Inc shares and that it was believed that

the shareholder base would now support the distribution. It was also proposed that the shareholder would

fully underwrite a $2 million rights issue at 1.5 cents per share should Emerald be in need of a capital

raising, given that the in specie distribution would leave Emerald with little cash. The intended offer

would not be conditional upon the in-specie distribution.

This intended offer, although not a formal offer, was also considered not to be a superior offer to the

Ochre offer, which was still in place at that time.

13.3.2 Practical level of control

As at 4 November 2013, Confederate and its associates hold 24.73% of the issued capital of Emerald but

controls 50% of the Emerald board. If the Offer is successful, then Confederate will hold an interest of

approximately 44% in Emerald.

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When shareholders are required to approve an issue that relates to a company there are two types of

approval levels. These are general resolutions and special resolutions. A general resolution requires 50%

of shares to be voted in favour to approve a matter and a special resolution required 75% of shares on

issue to be voted in favour to approve a matter. If the Offer is successful, Confederate will be able to

block special resolutions.

Confederate‟s control of Emerald following the Offer will be significant when compared to all other

shareholders. Therefore, in our opinion, while Confederate will be able to significantly influence the

activities of Emerald, it will not be able to exercise a similar level of control as if it held 100% of Emerald.

As such, Confederate should not be expected to pay a similar premium for control as if it were acquiring

100% of Emerald.

13.3.3 Consequences of not Approving the Offer

Potential decline in share price

We have analysed movements in Emerald‟s share price since the Offer was announced. A graph of

Emerald‟s share price since the announcement is set out below.

Source: Bloomberg

On the day of the announcement of the Offer the Company‟s share price increased by $0.02 from $0.012

to $0.014. Following the termination of the merger implementation deed entered into between Emerald

and Ochre, the share price reverted back to its pre-Offer price of $0.012. On 8 November 2013 the share

price of Emerald closed at $0.011.

Given the above analysis, Emerald‟s share price is unlikely to decline significantly as a result of the Offer

not being successful.

-

20.0

40.0

60.0

80.0

100.0

120.0

140.0

0.000

0.002

0.004

0.006

0.008

0.010

0.012

0.014

0.016

Volu

me (

millions)

Share

Pri

ce (

$)

Emerald share price and trading volume history

Volume Closing share price

Date of announcement of the Offer

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14. Conclusion

We have considered the terms of the Offer as outlined in the body of this report and have concluded that,

in the absence of a superior offer, the Offer is not fair and not reasonable to the Shareholders of Emerald.

15. Sources of information

This report has been based on the following information:

Bidder‟s statement released on 14 October 2013 and supplementary bidder‟s statement released on

29 October 2013;

Draft Target‟s Statement on or around the date of our Report

Audited financial statements of Emerald for the years ended 30 June 2011, 30 June 2012 and 30 June

2013

Cash flow forecasts relating to Emerald‟s Appalachian Project

Unaudited management accounts of Emerald for the period ended 30 September 2013

Share registry information;

Information in the public domain; and

Discussions with Directors and management of Emerald.

16. Independence

BDO Corporate Finance (WA) Pty Ltd is entitled to receive a fee of $18,000 (excluding GST and

reimbursement of out of pocket expenses). The fee is not contingent on the conclusion, content or future

use of this Report. Except for this fee, BDO Corporate Finance (WA) Pty Ltd has not received and will not

receive any pecuniary or other benefit whether direct or indirect in connection with the preparation of

this report.

BDO Corporate Finance (WA) Pty Ltd has been indemnified by Emerald in respect of any claim arising from

BDO Corporate Finance (WA) Pty Ltd's reliance on information provided by Emerald, including the non

provision of material information, in relation to the preparation of this report.

Prior to accepting this engagement BDO Corporate Finance (WA) Pty Ltd has considered its independence

with respect to Emerald and Confederate and any of their respective associates with reference to ASIC

Regulatory Guide 112 “Independence of Experts”. In BDO Corporate Finance (WA) Pty Ltd‟s opinion it is

independent of Emerald and Confederate and their respective associates.

A draft of this report was provided to Emerald and its advisors for confirmation of the factual accuracy of

its contents. No significant changes were made to this report as a result of this review.

BDO is the brand name for the BDO International network and for each of the BDO Member firms. BDO

(Australia) Ltd, an Australian company limited by guarantee, is a member of BDO International Limited, a

UK company limited by guarantee, and forms part of the international BDO network of Independent

Member Firms. BDO in Australia, is a national association of separate entities (each of which has

appointed BDO (Australia) Limited ACN 050 110 275 to represent it in BDO International).

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17. Qualifications

BDO Corporate Finance (WA) Pty Ltd has extensive experience in the provision of corporate finance

advice, particularly in respect of takeovers, mergers and acquisitions.

BDO Corporate Finance (WA) Pty Ltd holds an Australian Financial Services Licence issued by the Australian

Securities and Investment Commission for giving expert reports pursuant to the Listing rules of the ASX

and the Corporations Act.

The persons specifically involved in preparing and reviewing this report were Sherif Andrawes and Adam

Myers of BDO Corporate Finance (WA) Pty Ltd. They have significant experience in the preparation of

independent expert reports, valuations and mergers and acquisitions advice across a wide range of

industries in Australia and were supported by other BDO staff.

Sherif Andrawes is a Fellow of the Institute of Chartered Accountants in England & Wales and a Member of

the Institute of Chartered Accountants in Australia. He has over twenty five years experience working in

the audit and corporate finance fields with BDO and its predecessor firms in London and Perth. He has

been responsible for over 200 public company independent expert‟s reports under the Corporations Act or

ASX Listing Rules. These experts‟ reports cover a wide range of industries in Australia with a focus on

companies in the natural resources sector. Sherif Andrawes is the Chairman of BDO in Western Australia,

Corporate Finance Practice Group Leader of BDO in Western Australia and the Natural Resources Leader

for BDO in Australia.

Adam Myers is a member of the Australian Institute of Chartered Accountants. Adam‟s career spans 15

years in the Audit and Assurance and Corporate Finance areas. Adam has considerable experience in the

preparation of independent expert reports and valuations in general for companies in a wide number of

industry sectors.

18. Disclaimers and consents

This report has been prepared at the request of Emerald for inclusion in the Target‟s Statement which will

be sent to all Emerald Shareholders. Emerald engaged BDO Corporate Finance (WA) Pty Ltd to prepare an

independent expert's report to consider the proportional takeover offer by Confederate for 30% of the

shares held by each Emerald shareholder.

BDO Corporate Finance (WA) Pty Ltd hereby consents to this report accompanying the above Target‟s

Statement. Apart from such use, neither the whole nor any part of this report, nor any reference thereto

may be included in or with, or attached to any document, circular resolution, statement or letter without

the prior written consent of BDO Corporate Finance (WA) Pty Ltd. BDO Corporate Finance (WA) Pty Ltd

takes no responsibility for the contents of the Target‟s Statement other than this report.

We have no reason to believe that any of the information or explanations supplied to us is false or that

material information has been withheld. It is not the role of BDO Corporate Finance (WA) Pty Ltd acting

as an independent expert to perform any due diligence procedures on behalf of the Company. The

Directors of the Company are responsible for conducting appropriate due diligence in relation to

Confederate. BDO Corporate Finance (WA) Pty Ltd provides no warranty as to the adequacy, effectiveness

or completeness of the due diligence process.

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The opinion of BDO Corporate Finance (WA) Pty Ltd is based on the market, economic and other conditions

prevailing at the date of this report. Such conditions can change significantly over short periods of time.

With respect to taxation implications it is recommended that individual Shareholders obtain their own

taxation advice, in respect of the Offer, tailored to their own particular circumstances. Furthermore, the

advice provided in this report does not constitute legal or taxation advice to the Shareholders of Emerald,

or any other party.

The statements and opinions included in this report are given in good faith and in the belief that they are

not false, misleading or incomplete.

The terms of this engagement are such that BDO Corporate Finance (WA) Pty Ltd has no obligation to

update this report for events occurring subsequent to the date of this report.

Yours faithfully

BDO CORPORATE FINANCE (WA) PTY LTD

Sherif Andrawes

Director

Adam Myers

Director

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Appendix 1 – Glossary of Terms

Reference Definition

The Act The Corporations Act 2001 Cth

APES 225 Accounting Professional & Ethical Standards Board professional standard APES 225

„Valuation Services‟

Appalachian Project Producing Appalachian gas assets held by KEP

ASIC Australian Securities and Investments Commission

ASX Australian Securities Exchange

BDO BDO Corporate Finance (WA) Pty Ltd

Bidder‟s Statement The bidder‟s statement from Confederate proposing to offer Emerald shareholders 1.4

cents per share for 30% of the shares held by each Shareholder (including the

supplementary bidder‟s statement released on 29 October 2013)

The Company Emerald Oil & Gas NL

Confederate Confederate Capital Pty Ltd

DCF Discounted Future Cash Flows

EBIT Earnings before interest and tax

EBITDA Earnings before interest, tax, depreciation and amortisation

Emerald Emerald Oil & Gas NL

FME Future Maintainable Earnings

KEP Kentucky Energy Partners LLC

Key Petroleum Key Petroleum Limited

Mcfd Cubic feet of gas per day

MMcfd Million cubic feet of gas per day

NAV Net Asset Value

NYSE New York Stock Exchange

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Reference Definition

Ochre Ochre Group Holdings Limited

Our Report This Independent Expert‟s Report prepared by BDO

QMP Quoted Market Price

RBA Reserve Bank of Australia

RG60 Offers of Arrangements (March 2011)

RG111 Content of expert reports (March 2011)

RG112 Independence of experts (March 2011)

The Offer The offer from Confederate of 1.4 cents per share for 30% of the shares held by each

Shareholder

Section 411 Section 411 of the Act

Shareholders Shareholders of Emerald

Target‟s Statement The target‟s statement to be issued by Emerald to all Shareholders in response to the

Bidder‟s Statement

Voyager Voyager Oil & Gas Inc.

VWAP Volume Weighted Average Price

Valuation Engagement An Engagement or Assignment to perform a Valuation and provide a Valuation Report

where the Valuer is free to employ the Valuation Approaches, Valuation Methods, and

Valuation Procedures that a reasonable and informed third party would perform taking

into consideration all the specific facts and circumstances of the Engagement or

Assignment available to the Valuer at that time.

White Deer White Deer Energy

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Appendix 2 – Valuation Methodologies

Methodologies commonly used for valuing assets and businesses are as follows:

1 Net asset value (“NAV”)

Asset based methods estimate the market value of an entity‟s securities based on the realisable value of

its identifiable net assets. Asset based methods include:

Orderly realisation of assets method

Liquidation of assets method

Net assets on a going concern method

The orderly realisation of assets method estimates fair market value by determining the amount that

would be distributed to entity holders, after payment of all liabilities including realisation costs and

taxation charges that arise, assuming the entity is wound up in an orderly manner.

The liquidation method is similar to the orderly realisation of assets method except the liquidation

method assumes the assets are sold in a shorter time frame. Since wind up or liquidation of the entity

may not be contemplated, these methods in their strictest form may not be appropriate. The net assets

on a going concern method estimates the market values of the net assets of an entity but does not take

into account any realisation costs.

Net assets on a going concern basis are usually appropriate where the majority of assets consist of cash,

passive investments or projects with a limited life. All assets and liabilities of the entity are valued at

market value under this alternative and this combined market value forms the basis for the entity‟s

valuation.

Often the FME and DCF methodologies are used in valuing assets forming part of the overall Net assets on

a going concern basis. This is particularly so for exploration and mining companies where investments are

in finite life producing assets or prospective exploration areas.

These asset based methods ignore the possibility that the entity‟s value could exceed the realisable value

of its assets as they do not recognise the value of intangible assets such as management, intellectual

property and goodwill. Asset based methods are appropriate when an entity is not making an adequate

return on its assets, a significant proportion of the entity‟s assets are liquid or for asset holding

companies.

2 Quoted Market Price Basis (“QMP”)

A valuation approach that can be used in conjunction with (or as a replacement for) other valuation

methods is the quoted market price of listed securities. Where there is a ready market for securities such

as the ASX, through which shares are traded, recent prices at which shares are bought and sold can be

taken as the market value per share. Such market value includes all factors and influences that impact

upon the ASX. The use of ASX pricing is more relevant where a security displays regular high volume

trading, creating a “deep” market in that security.

3 Capitalisation of future maintainable earnings (“FME”)

This method places a value on the business by estimating the likely FME, capitalised at an appropriate rate

which reflects business outlook, business risk, investor expectations, future growth prospects and other

entity specific factors. This approach relies on the availability and analysis of comparable market data.

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42

The FME approach is the most commonly applied valuation technique and is particularly applicable to

profitable businesses with relatively steady growth histories and forecasts, regular capital expenditure

requirements and non-finite lives.

The FME used in the valuation can be based on net profit after tax or alternatives to this such as earnings

before interest and tax (“EBIT”) or earnings before interest, tax, depreciation and amortisation

(“EBITDA”). The capitalisation rate or "earnings multiple" is adjusted to reflect which base is being used

for FME.

4 Discounted future cash flows (“DCF”)

The DCF methodology is based on the generally accepted theory that the value of an asset or business

depends on its future net cash flows, discounted to their present value at an appropriate discount rate

(often called the weighted average cost of capital). This discount rate represents an opportunity cost of

capital reflecting the expected rate of return which investors can obtain from investments having

equivalent risks.

Considerable judgement is required to estimate the future cash flows which must be able to be reliably

estimated for a sufficiently long period to make this valuation methodology appropriate.

A terminal value for the asset or business is calculated at the end of the future cash flow period and this is

also discounted to its present value using the appropriate discount rate.

DCF valuations are particularly applicable to businesses with limited lives, experiencing growth, that are

in a start up phase, or experience irregular cash flows.

5 Market Based Assessment

The market based approach seeks to arrive at a value for a business by reference to comparable

transactions involving the sale of similar businesses. This is based on the premise that companies with

similar characteristics, such as operating in similar industries, command similar values. In performing this

analysis it is important to acknowledge the differences between the comparable companies being analysed

and the company that is being valued and then to reflect these differences in the valuation.

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ANNEXURE 2 – EMERALD ANNOUNCEMENTS TO ASX SINCE 1 NOVEMBER 2012

Date Title

05/11/2013 Change in substantial holding

05/11/2013 Notice Freeing Takeover Offer from Defeating Conditions

31/10/2013 Completion of Dispatch of Bidders Statement

30/10/2013 Quarterly Activities & Cashflow Report - Sept 13

30/10/2013 Notice of Annual General Meeting/Proxy Form

29/10/2013 Change in substantial holding

29/10/2013 Supplementary Bidder's Statement

29/10/2013 Bidder's Statement

18/10/2013 Cancellation of Requestion of a Meeting of Members

14/10/2013 Receipt of Bidder's Statement

11/10/2013 Initial Director's Interest Notice - Kestell and Pynes

11/10/2013 Final Director's Interest Notice M Krzus

11/10/2013 Board Changes

08/10/2013 Notice of Requisition of Meeting of Members

08/10/2013 Proposed Scheme of Arrangement

08/10/2013 OGH: Termination of Proposed Scheme of Arrangement

04/10/2013 Change in substantial holding

04/10/2013 Initial Director's Interest Notice

04/10/2013 Final Director's Interest Notice * 3

04/10/2013 Appointment of Director

03/10/2013 Change in substantial holding

03/10/2013 Directors Resignation

02/10/2013 Change in substantial holding

01/10/2013 Conditions of Proportional Takeover Offer

01/10/2013 Takeover Offer Received

30/09/2013 Full Year Statutory Accounts

27/09/2013 Notice of Requisition of a Meeting of Members

25/09/2013 Ceasing to be a substantial holder

23/09/2013 Becoming a substantial holder

02/08/2013 Reinstatement to Official Quotation

02/08/2013 OGH: Scheme of Arrangement to Merge with EMR

02/08/2013 Implementation Deed for Merger with Ochre Group Holdings

01/08/2013 Request for Extension of Suspension

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Date Title

31/07/2013 June Quarterly Activities & Cashflow Report

30/07/2013 Suspension from Official Quotation

29/07/2013 KEY: Acquisition of Participating Interests - EP104 & R1

29/07/2013 Sale of Participating Interests

26/07/2013 Trading Halt Request

26/07/2013 Trading Halt

24/05/2013 Results of Meeting

30/04/2013 Quarterly Activities & Cashflow Report

26/04/2013 Notice of General Meeting & Proxy form

15/03/2013 Half Yearly Report and Accounts

13/03/2013 Change in Substantial Holding from OGH

26/02/2013 Becoming a substantial holder from OGH

26/02/2013 Ceasing to be a substantial holder

26/02/2013 Strategic Investment in Emerald Oil & Gas NL by Ochre Group

26/02/2013 Becoming a Substantial Holder from OGH

26/02/2013 OGH: Strategic Investment in Emerald Oil & Gas NL by Ochre

31/01/2013 Quarterly Cashflow & Activities Report

27/12/2012 Director Appointment & App 3X - D Di Costa

24/12/2012 Revocation of Requisition of a Meeting of Members

13/12/2012 Update on Requisitioned Meeting of Members

03/12/2012 Meeting Requisition

22/11/2012 Initial Director's Interest Notice

21/11/2012 Results of Meeting

13/11/2012 In Specie distribution of holding in Emerald Oil Inc.

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